SoftBank’s bookkeeping methodology draws investors’ scrutiny after taking a US$4.6 billion hit from its bet on WeWork

When SoftBank buys shares in a start-up and then invests again at a higher valuation, Son says he has made a profit

That is legal under accounting standards, but SoftBank receives no money. The only change is that SoftBank has boosted the value of its original stake from US$1 billion to US$2 billion by raising the value of the start-up

10-MIN READ10-MIN

SoftBank Group Chief Executive Masayoshi Son at a news conference in Tokyo on November 5, 2018. Photo: Reuters

Published: 3:42pm, 26 Nov 2019Updated: 3:42pm, 26 Nov 2019

In early 2018, the founders of Chinese artificial intelligence start-up SenseTime Group flew to Tokyo to see billionaire investor Masayoshi Son.

As they entered the offices, Chief Executive Officer Xu Li was hoping to persuade the head of SoftBank Group to invest US$200 million in his three-year-old start-up.

A third of the way into the presentation, Son interrupted to say he wanted to put in US$1 billion. A few minutes later, Son suggested US$2 billion. Turning to the roomful of SoftBank managers, Son said this was the kind of AI company he’d been looking for. ``Why are you only telling me about them now?’’ he asked, according to one person in the room.

In the end, SoftBank invested US$1.2 billion, helping to transform SenseTime into the world’s most valuable AI start-up. The young company’s valuation hit US$7.5 billion this year.

That investment model is now under fire after Son, 62, boosted the equity in office-sharing start-up WeWork only to see it plummet as investors balked at enormous losses and troublesome governance. Indeed, SoftBank has participated, along with other investors, in scores of fundraisings that have added a total of more than US$150 billion to the value of private companies, according to Bloomberg calculations.

Among its deals are the world’s top two start-ups – ByteDance valued at US$75 billion and Didi Chuxing at about US$56 billion. In some cases, SoftBank’s involvement in multiple funding rounds helped drive up valuations that resulted in paper profits for Son’s company.

The WeWork fiasco raises questions about such numbers. The co-working startup’s valuation crested at US$47 billion this year with SoftBank’s investment, then plummeted to US$7.8 billion in a bailout engineered by Son. WeWork is slashing jobs and scaling back operations.