Son’s reputation as an investment gunslinger led to the 2017 launch of the SoftBank Vision Fund, the largest venture capital portfolio ever. Targeting $100 billion, Masa has focused the Vision Fund on companies that stand to benefit from the widespread adoption of artificial intelligence software.

The approach has had its ups and downs, as can be seen in SoftBank’s stock. Less than two years later Barrons showed SoftBank in a bullish cover story in July 2019 that the stock had more than doubled as tech valuations soared and the company aggressively bought back shares. But under pressure from some bad bets and the broader decline in tech stocks, the stock has since lost all of those gains, and then some, with a loss of around 13% since our story ran.

The Vision Fund, and a smaller sequel called Vision Fund 2, invested in 47 companies that went public, including

DoorDash

(DASH),

UberTechnologies

(UBER),

Qualtrics International

(XM) and Slack, later acquired by

Selling power

(CRM). But there have also been embarrassing missteps, such as an overcommitment to

We work

(WE) that led to billions in losses, and an investment in fintech lender Greensill, which collapsed and closed.

This year’s tech stock bear market has been the toughest test yet for SoftBank and its underlying thesis that bigger is better when it comes to investing in startups. -up.

Last week, SoftBank announced a loss of $24 billion, including losses of about $20 billion combined in the two Vision funds. The difficult quarter reduced Vision Fund 1’s cumulative return by almost a third, to $20.4 billion, on a total investment of $87.7 billion. Vision Fund 2, launched in 2019, now has a cumulative loss of $9.3 billion on investments of $49.1 billion.

During a press conference last week, Masa apologized for the poor performance. “I’m quite embarrassed and remorseful,” he said. The company’s funds have now slowed their pace of new investments.

One of the big frustrations of SoftBank stock investors is that the value of the company’s underlying asset has almost always been much higher than its stock price. SoftBank owns chip design firm Arm Holdings; issues in both

T-Mobile USA (TMUS)

and

Deutsche Telekom

(DTE.Germany); a substantial minority stake in

SoftBank Corp.

(9434.Japan), a wireless telecommunications provider; asset management company Fortress Group; a Japanese baseball team; its stake in Alibaba; nearly $35 billion in cash; and various other tracks and bobs. And that’s before the two Vision Funds: the company contributed a portion of the capital from the first Vision Fund and all of the cash from the Vision Fund 2. At the end of the June quarter, SoftBank’s net asset value was $139 billion. dollars, about twice its current market value.

In a rare interview with Barrons in May 2021, Masa said, “Investors still don’t trust our ability to continually make good progress. We have to prove ourselves in the next few years.

But the continued disconnect between asset value and stock value suggests Masa’s SoftBank experiment has failed, at least as a public company. There has been speculation that Masa may take the company private. The idea has strong merit.

Going private might make it easier. On the one hand, SoftBank could end the practice of providing the public with quarterly updates on the performance of its venture capital funds, highlighting their near-term results. Private venture capital firms are not required to report their results, so they don’t. The question is whether Masa could financially arrange a privatization deal. The math suggests it’s doable.

A wildcard is the initial public offering of Arm, which SoftBank bought for $32 billion in 2016. Arm has grown significantly since acquiring SoftBank six years ago, but let’s be cautious and assume it gets a $30 billion valuation in an IPO. Add the company’s $35 billion in cash, the remaining stake from Alibaba, proceeds from a possible sale of Fortress (SoftBank is looking for a buyer), and about $10 billion in telecommunications assets left over from a previous investment. in Sprint, and you have active cash far exceeding the current market value. Still hidden in the Vision Fund are stakes in start-ups that could one day have big releases, including TikTok parent company ByteDance, sportswear company Fanatics and logistics provider Flexport, among others.

Alternatively, SoftBank could choose to simply wait for the current downturn. At some point, the IPO market will reopen and tech stocks should regain favor.

New Street Research analyst Pierre Ferragu points out that SoftBank has a high-quality portfolio of assets and continues to buy back stocks at a 50% discount to net asset value. According to him, “with only a partial recovery from the Vision Fund,” the stock could easily double from here.

Write to Eric J. Savitz at eric.savitz@barrons.com