How China’s regulatory crackdown whomped Vision Fund 1’s returns

SoftBank lost some investing preeminence in recent years as names like Tiger and a16z rose to new heights thanks to rapid-fire deal-making and eager willingness to prepay for startup growth. But as SoftBank continues to cut checks from its Vision Fund 2, we’re still seeing results trickle in from the time when the Japanese conglomerate was the world’s key startup backer thanks to its megasized Vision Fund 1.

And the recent news is less than stellar.

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SoftBank’s earnings, disclosed today, include sharp losses from Vision Fund 1 after several of its key investments lost value. There was good news in the mix as well, but reported gains were only able to blunt losses other investments racked up.

Now, notably, we get to chat about Middle Eastern money, Chinese regulation, the U.S. stock market and SoftBank at the same time — they are all connected. This will take a little explaining, but, yes, we’re talking about Didi.


Crunchbase data lists three separate investments from SoftBank into Didi, the Chinese ride-hailing giant that famously won a fight with Uber over its domestic market. SoftBank’s Vision Fund 1 was, of course, also an investor in Uber. It’s complicated.

The Japanese telco and investing behemoth was a big enough shareholder in Didi at the time of its IPO that TechCrunch noted it controlled around 21.5% of the ride-hailing company at that moment.

When Didi went public at $14 per share, it was worth around $67 billion. Since then, things have gone poorly for the company, which ran afoul of Chinese regulators, who made it stop accepting new customers and pull its app. Shares of Didi — a company firmly outside the good graces of the Chinese Community Party — are now worth just $8.12 per share.

SoftBank reckons that after investing a total of $12.073 billion into Didi through its Vision Fund 1 vehicle, its investment was worth just $7.544 billion as of September 31, 2021, and $7.864 billion as of November 5, 2021. The gap between the company’s investment price and current value is stark.

Here’s how it all shook out in Vision Fund 1 performance terms, per SoftBank’s discussion of its six-month period concluding at the end of September 2021 (emphasis: TechCrunch):

Investment loss of ¥879,186 million was recorded. SVF1 recorded realized gain on investments (net) of ¥757,217 million mainly as a result of sales of entire and partial shareholding positions of its certain investments. SVF1 recorded unrealized loss on valuation (net) totaling ¥1,421,695 million for listed portfolio companies. This was due to a loss of ¥1,890,737 million recorded for 13 portfolio companies, including a loss of ¥1,212,241 million recorded for Coupang, Inc. (“Coupang”) and ¥321,016 million recorded for DiDi Global Inc. (“DiDi”), while a gain of ¥469,041 million was recorded for two companies including DoorDash, Inc. (“DoorDash”). On the other hand, for unlisted portfolio companies, SVF1 recorded unrealized gain on valuation (net) of ¥784,808 million mainly reflecting an increase in fair values of certain portfolio companies.

The Coupang loss is larger, yes, after shares of the Korean company fell from a high of $69.00 this March to just $29.93 as of the time of writing. But SoftBank’s first Vision Fund has recorded huge overall gains on its Coupang deal. As of November 5, 2021, SoftBank said that it paid $2.729 billion for Coupang equity, which was now worth $16.991 billion. Some declines there are less embarrassing, as they are profit cuts versus net red ink.

The value of Didi may recover. It may not. What’s certain is that the company’s value has fallen sharply in the wake of a regulatory crackdown in China that is more than impacting public-market investors in the U.S. that chose to buy Didi stock, but also investors in the company that held onto its stock post-IPO. Including SoftBank and its Vision Fund 1.

The fund pulled money from all over, including, CNN reports, about 60% of its capital from Saudi Arabia and the UAE. In essence, then, Chinese regulatory action is harming the value of a U.S. stock, which is bringing down the value of a Japanese investment fund, which raised most of its capital from the Middle East.

It feels like an era ago that we were watching a U.S. company go head-to-head with a domestic Chinese company for its local market. Can you imagine that happening today? It seems impossible.

I doubt we’ll see this particular set of happenings line up again in the future, but it is fascinating to track the money backward, seeing where cash reserves were weaponized into investment vehicles, only to see key deals reach the public markets before taking a regulatory nightstick to the dome.