No, SoftBank Won’t Go Down in Flames: Term Sheet

Following the WeWork fiasco, all eyes have been on
SoftBank. 

The Japanese behemoth’s major investments haven’t had the
best year. Uber’s stock has been tanking, WeWork cancelled its IPO, and
SoftBank’s own shares have been trading at close to 31% lower than they were in
April. In a recent interview, Son lamented his
investing record
and even said he’s changed his tune when speaking to
founders.

“The results still have a long way to go and that makes me
embarrassed and impatient,” Son said in an interview with Nikkei Business. “I
used to envy the scale of the markets in the U.S. and China, but now you see
red-hot growth companies coming out of small markets like in Southeast Asia.
There is just no excuse for entrepreneurs in Japan, myself included.”

But here’s a twist: Fortune’s
Erik Sherman writes
that the magnitude of disaster WeWork represents
for SoftBank could have been grossly overstated in media coverage and, under
some conditions, the investment could even turn a profit.

At least one analyst (who was not authorized to be directly
quoted) was told by a SoftBank official that the investment giant has less
exposure to WeWork than generally thought, Sherman writes.

Outsiders are less optimistic. Atul Goyal, a technology
equity research analyst at Jefferies, tells Fortune that he is “very
surprised” to hear this. “We are pretty certain that it is about $10
to $11 billion that they have invested,” Goyal says. In other words, if
WeWork’s value drops to $10 billion, how could SoftBank’s share represent
anything but a loss?

From
the story

Startup information site Crunchbase shows SoftBank
participation in multiple WeWork funding rounds that totaled $10.4 billion… But
half of that investment was a purchase of shares from employees and previous
investors at a valuation of about $20 billion, according to the
New York
Times. As far as other investment rounds, SoftBank may have taken the common
VC practice of negotiating down valuations. So long as WeWork’s valuation
doesn’t drop below the valuation levels at which SoftBank obtained shares,
there would be no absolute loss to the investment firm. 

Sherman also delves into SoftBank’s history of hedging bets,
showing how the firm’s opaqueness could actually serve as its escape vessel. Read
more. 

RECESSION WATCH: Fortune teamed up with
SurveyMonkey to poll 1,470 executives who make purchasing decisions at a
variety of companies. The top findings?

— Over the past 12 months, 29% of purchasers said
their industry was heating up, 60% said it was holding steady, and 11%
said it was cooling down. 

— Just under half of buyers (49%) said the
amount spent on purchasing at their firm was up year-over-year in the most
recent quarter, edging out those who said it held steady (34%) and
purchasers who saw a decrease (11%). 

— 2 in 3 purchasers say a recession is likely
within the next 12 months.

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