Major investors are unhappy with SoftBank Technology Investment Fund

PIF and Mubadala have complained privately of the high prices that the technology investment fund, by far the largest in the world, has paid for some technology companies, according to people close to the record. PIF is also concerned about SoftBank's practice of investing in companies first, and then transferring the holdings to the Vision Fund, often at a higher price, according to a person familiar with the thinking of investors in the Middle East.

Some investors complained to the Saudis that Mr. Son could overturn his fund managers' decisions and that the fund's decision-making process was chaotic and often led to last minute reversals, according to people familiar with the fund. folder.

Since its launch in mid-2017, the Vision Fund has announced investments and expenditures of approximately $ 60 billion, which have unlocked billions of dollars in prestigious startups, including the giant of the world. Uber Technologies Inc. and the WeWork Cos office rental titan. SoftBank has indicated 20 other cases in progress or in the books of the company. About three-quarters of the capital was spent, said people familiar with the fund. The fund's leaders plan to raise billions of additional dollars.

The Vision Fund, PIF and Mubadala all said their relationships were good. Investors say they support the strategy and governance of the fund.

"The Saudis have been great investors who have given us warm support and entrusted their money," Son told a press conference in Tokyo on Feb. 6. "It is too early to say where we are going to raise funds or under what conditions, we both have different conditions."

A major problem between the Vision Fund and its investors, and within SoftBank, lies in the high valuations of past and pending investments, notably in WeWork and the Hong Kong SenseTime Group Ltd. facial recognition firm, according to people familiar with the file.

In January, SoftBank reduced a planned investment in WeWork from $ 16 billion to $ 2 billion after a dip in Saudi Arabia and Abu Dhabi.

SoftBank had invested several hundred million dollars in SenseTime last fall, bringing the company's valuation to about $ 7.7 billion, according to sources close to the deal. The Vision Fund then planned to make a $ 1 billion joint investment with Mubadala in SenseTime, as part of a potential fundraiser that could bring the company $ 10 billion, according to sources close to the record. .

The agreement was never reached after the retreat of Mubadala in recent weeks, said people familiar with the subject. The fund hesitated over what it saw as a high valuation target, said one informed.

Some Vision Fund employees also felt that valuation was high, some people said. SenseTime's rival, Megvii Technology Inc., is raising $ 3.5 billion in funding, according to sources familiar with the matter.

SenseTime and Mubadala indicated that they were unaware of any potential co-investments between Vision Fund and Mubadala. SenseTime said it has never launched a $ 1 billion fundraiser for $ 10 billion.

In a climate of increasing tension, Mubadala confirmed Monday the commitment previously made by SoftBank to invest in a separate investment vehicle set up by the Abu Dhabi fund.

Investors also complained about SoftBank's strategy of investing first in the companies and then transferring the participations to the Vision Fund later.

Someone familiar with Middle Eastern investor sentiment has expressed concern that SoftBank is taking advantage of high-tech valuations to crystallize earnings at the expense of PIF and Mubadala. SoftBank has transferred, sold or is considering selling to Vision Fund a stake of at least $ 26.3 billion in companies that it had originally purchased for approximately $ 24.9 billion in recent years , according to the documents filed.

SoftBank's transfers include a stake in China's auto giant Didi Chuxing Technology Co., which it has bought for $ 5.9 billion and which it has agreed to sell to Vision Fund for $ 6.8 billion, as well as a stake in the Indian hotel booking website OYO Hotels, which she transferred to the Vision Fund last year for double the $ 100 million dollars paid in 2015.

The problem is not necessarily the premium on the cost of SoftBank for investments; it is that the company buys and transfers investments while the market is high, which may create losses for the fund.

In some cases, SoftBank itself has contributed to higher ratings by organizing massive fundraising campaigns. In the case of OYO, SoftBank or its Vision fund led increasingly large financing rounds, which resulted in a recently concluded $ 1 billion investment, which led to the valuation of the start-up about $ 5 billion, according to people close to the file. That's 13 times more than when SoftBank first invested in 2015, according to the Dow Jones VentureSource investment data tracker.

In a presentation to investors earlier this month, SoftBank stated that its investments in the Vision Fund were independently assessed at the end of 2018 and that it had a multi-step evaluation process that included reviews by independent consultants hired by the fund's main investors as well as an audit.

Concerns about the valuation of the fund's investments are closely related to concerns about its investment process, particularly the power held by Mr. Son. In recent weeks, Son has dismissed the objections of his SoftBank partners against a $ 1.5 billion Vision Fund investment in Chehaoduo Group, a Chinese online car trading platform, according to news reports. people close to the file. Chehaoduo has been accused of fraud in recent weeks by a competitor.

A spokeswoman for Chehaoduo said a January statement belied the accusations. Mr. Son told the Wall Street Journal that SoftBank had conducted its own due diligence and found the accusations unfounded.

Chehaoduo would have cost $ 8.5 billion to this investment, according to a person close to the transaction. Nasdaq-listed Uxin Ltd. has a market capitalization of $ 1.18 billion, while Hong Kong-listed Yixin Group Ltd. has a market value of $ 1.75 billion.

-Liz Hoffman, Justin Scheck and Jenny Strasburg contributed to this article.

Write to Julie Steinberg at [email protected], Rory Jones at [email protected], Phred Dvorak at [email protected] and Mayumi Negishi at [email protected]