Since billionaire investor Masayoshi Son launched his $100 billion Vision Fund in 2016, pouring money into more than 80 unicorns, and helped create a startup bubble in the last five years, the implosion of WeWork has signaled the top is near.
Bloomberg notes that Son, flushed with cash, after he turned a $20 million bet on China's Alibaba into a $120 billion, carelessly plowed billions of dollars into startups with limited consideration to valuation.
For instance, Son had a meeting with a Chinese artificial intelligence startup, called SenseTime Group, who asked the billionaire and SoftBank executives for several hundred million dollars. Son told SenseTime that he would give them $2 billion, but after some rejection from SoftBank managers, Vision Fund put in $1 billion, nearly 5x of what was requested at the beginning of the meeting.
Son pumped up many valuations of startups with no consideration for risk, Eric Schiffer, chief executive officer of Patriarch Organization, told Bloomberg.
"They pump up valuations to get higher returns to look good to investors," Schiffer said. "That kind of fundraising apparatus is essentially unicorn porn."
Son was a major contributor in fueling the unicorn bubble by recklessly bidding up startup valuations.
The pumping scheme unraveled during the WeWork fiasco that saw its valuation peak at $47 billion earlier this year, and by late year, now only worth $7.8 billion.
Son and his team engineered a massive financial bailout of WeWork to avoid a systemic collapse of Vision Fund. He also had to calm investors quickly to avoid fears that certain accounting practices artificially bid up valuations in other Vision Fund investments.
"WeWork is not just a mistake, it is a signal of weakness in the whole model," said Aswath Damodaran, a professor of finance at New York University's Stern School of Business. "If you screwed up that valuation so badly, what about all of the other companies in your portfolio?"
SoftBank's auditors at Deloitte & Touche reviewed the final valuations of Vision Fund's unicorns. Along with Vision Fund's limited partners, who used Duff & Phelps and Ernst & Young, so far, found no wrongdoing in the fund pumping up valuations of its unicorns.
The success of Vision Fund depends on bidding up valuations of unicorns then dumping them onto public markets in the form of IPOs. That's how the fund and SoftBank make money.
So far, Vision Fund has "already had seven IPOs, $4.7 billion of realized gains, $11.4 billion in cumulative investment gains and returned $9.9 billion to our limited partners," Navneet Govil, the CFO of SB Investment Advisers, the entity that manages the Vision Fund.
After the WeWork implosion, Vision Fund's deals have all come under intense examination. As shown below, many of the deals have seen parabolic rises in valuations in the last several years.
And the big question: What if everyone has finally figured out that Son's SoftBank and Vision Fund are just a self-funding Ponzi scheme that relies on IPOs to cash out. It's only when the IPO market shuts, as what happened with WeWork, the scheme unravels.