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Rajeev Misra Built SoftBank’s Huge Tech Fund. Now He Has to Save It.


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Rajeev Misra Built SoftBank’s Huge Tech Fund. Now He Has to Save It.

https://www.wsj.com/articles/rajeev-misra-built-softbanks-vision-fund-now-he-has-to-save-it-11572536439?mod=hp_lead_pos8

Flying over Europe in a private jet last year,

Rajeev Misra

took his shoes off and propped his bare feet on the knee of a top executive of FIFA, soccer’s governing body. The executive froze while Mr. Misra, head of

SoftBank Group Corp.


9984 3.71%

’s $100 billion Vision Fund, chatted about ways to make more money off the streaming rights for the organization’s tournaments.

The Vision Fund had become, in the span of a year, the world’s most influential technology investor, making Mr. Misra a kingmaker in Silicon Valley. The meeting on the plane was part of his plan to make the Vision Fund a colossus, with up to half a trillion dollars in investments and a seat at the center of the new economy.

Today, the Vision Fund is in trouble. Its bets on onetime darlings such as

Uber Technologies Inc.

and WeWork have fallen in value. Last week, SoftBank had to step in to rescue WeWork in a $10 billion deal that values the office-sharing startup at 80% below its peak.

Having put the Vision Fund together, Mr. Misra is now the man in charge of keeping it from falling apart. A finance whiz who cut his teeth on Wall Street, he pads around the Vision Fund’s London headquarters barefoot, often chewing on betel nuts, a mild stimulant. He recently changed the layout of his office after consulting his astrologer.

The past month has taken him to New York, where he arranged the financing for the WeWork rescue, and to the Middle East, where he tried to allay the concerns of the fund’s two largest investors, the governments of Saudi Arabia and Abu Dhabi.

Mr. Misra and SoftBank’s founder, Japanese telecom magnate

Masayoshi Son,

snorkeled in the Red Sea with Saudi Arabia’s crown prince,

Mohammed bin Salman.

Two superyachts—the 439-foot royal Serene and a ship borrowed for the occasion from Las Vegas billionaire

Sheldon Adelson

—hosted discussions about Saudi Arabia investing in a second $100 billion Vision Fund that Messrs. Son and Misra are laboring to raise. Ping pong followed with the prince’s top financial deputy.

Masayoshi Son, chairman and CEO of SoftBank Group, spoke before one of the Vision Fund’s big investments, Uber Technologies, went public.


Photo:

Akio Kon/Bloomberg News

The Vision Fund, conceived by Mr. Son, was launched two years ago with wild ambitions: Raise $100 billion, far more than any private investment fund had ever gathered. Invest huge sums in Silicon Valley’s “unicorns,” startups worth more than $1 billion with the potential to disrupt whole industries. Then do it again.

Mr. Misra took care of the details. To get to $100 billion, he piled on debt. That is unusual for a fund investing in unproven companies and has cost the fund billions of dollars a year in interest payments. He hired hundreds of people, many who came up not in venture capital but on Wall Street. They have invested at a ferocious pace, sometimes supplying startup companies with far more money than they initially sought.

Inside the Vision Fund, investment decisions often are made in minutes, said people familiar with its operations. A consultant’s report last year quoted employees describing a “chaotic” and “personality driven” firm with few controls, where people are “incentivized to gamble to look good” and build their own personal brands.

What Distinguishes Vision Fund?

At $100 billion, the Vision Fund dwarfs other venture-capital funds.

It’s big but highly leveraged

Invests billions in late stage companies such as Uber and WeWork

Fund is nearly twice the size of the $55.5 billion raised by all U.S.

venture-capital

firms in 2018…

Funds competitors in the same industries

Vision Fund hasn’t yet cashed out of most investments

…but $40 billion of it is debt paying 7% interest.

Is trying to raise another $100 billion

It’s big but highly leveraged

Invests billions in late stage companies such as Uber and WeWork

Fund is nearly twice the size of the $55.5 billion raised by all U.S. venture-capital firms in 2018…

Funds competitors in the same industries

Vision Fund hasn’t yet cashed out of most investments

…but $40 billion of it is debt paying 7% interest.

Is trying to raise another $100 billion

It’s big but highly leveraged

Invests billions in late stage companies such as Uber and WeWork

Fund is nearly twice the size of the $55.5 billion raised by all U.S.

venture-capital

firms in 2018…

Funds competitors in the same industries

Vision Fund hasn’t yet cashed out of most investments

…but $40 billion of it is debt paying 7% interest.

Is trying to raise another $100 billion

It is big but highly leveraged

Fund is nearly twice the size of the $55.5 billion raised by all U.S.

venture-capital

firms in 2018…

…but $40 billion of it is debt paying 7% interest.

Vision Fund hasn’t yet cashed out of most investments

Invests billions in late stage companies such as Uber and WeWork

Funds competitors in the same industries

Is trying to raise another $100 billion

The last time SoftBank told shareholders how the fund was doing—at the end of March—it was up 29%, on paper. Since then, however, there has been trouble at Uber and We Co., as the WeWork parent is known, and with some smaller investments. The Vision Fund’s stakes in an on-demand dog-walking service, a robot-powered pizza-delivery company and an indoor vertical-farming startup are all worth less than the money invested, people familiar with the matter said.

“Money in the right hands“ works, said

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Nikesh Arora,

a former SoftBank executive, at an industry conference this week. “But it doesn’t work willy-nilly on every pet-walking and hotel-room-renting website.”

Mr. Misra, 57 years old, got the offer to join SoftBank in 2014 after a long career on Wall Street. The son of middle-class parents in New Delhi, he studied electrical engineering at the Massachusetts Institute of Technology and worked at the Los Alamos nuclear laboratory in New Mexico before making his way to

Deutsche Bank AG

. He spent his days selling complex credit instruments and chain-smoking Indian cigarillos in an empty office next door to his own.

He eventually oversaw a team of credit traders whose bet against the U.S. subprime mortgage market was chronicled in “The Big Short.” He left in 2009 and over the next four years had stints at London hedge fund TCI, Swiss bank

UBS Group AG

and Fortress Investment Group, a New York-based investment firm.

He had endeared himself to Mr. Son back in 2006, when he raised the $16 billion in debt SoftBank needed to close the acquisition of a large cellphone carrier. At the time, the transaction was criticized as dangerously overleveraged—SoftBank had put up just $2 billion of its own money—but it worked, helping to make Mr. Son, now 62, a billionaire many times over.

Share Your Thoughts

Is the Vision Fund’s unconventional investment approach likely to work over the long run? Join the conversation below.

When the pair reconnected at a colleague’s wedding in 2014, Mr. Son persuaded his former banker to join SoftBank. His job was the same: Find money.

Mr. Misra proved his worth by salvaging Mr. Son’s most problematic investment, the U.S. cellular provider Sprint, which was locked in a draining price war and running out of cash. He borrowed against Sprint’s handset leases and airwaves, first-of-their-kind deals that kept the company afloat.

Around that time, Messrs. Son and Misra began planning what would become the Vision Fund, code-named Project Crystal Ball. Mr. Son saw it as the final step in transforming his Japanese telecom business into a holding company modeled after

Warren Buffett’s

Berkshire Hathaway Inc.,

stocked with technology companies that would power the new economy.

The fund launched in 2017 with just under $100 billion, including $25 billion from SoftBank itself and $60 billion from the governments of Saudi Arabia and Abu Dhabi. The two Middle Eastern investors didn’t just hand all that money to the fund. They lent much of it, at an annual interest rate of 7%. To cover the interest, which will be about $2 billion this year, the Vision Fund has been paying creditors back with some of the money they lent.

Messrs. Son and Misra moved quickly, spending an average of $1 billion a week. They plowed money into food-delivery startup DoorDash Inc., an automated driving venture led by

General Motors,

and Oyo Hotels and Homes, an Indian hotel-booking service. The $100 billion, which was meant to be invested over four years, is nearly gone after two.

The Vision Fund grew from 25 employees to more than 300, and tensions inside its London townhouse headquarters rose, too. Many of the newcomers had worked with Mr. Misra on Wall Street and shared his background in financial structuring and sales. Old-line SoftBank employees took to calling the newcomers the “Deutsche Bank mafia.”

At times, disorder reigned. On several occasions, separate investment teams discussed investing in the same company on different terms, according to current and former fund executives and entrepreneurs who have discussed or received an investment from the Vision Fund.

Executives figured out ways to wangle a quick yes from Mr. Son: If you could say a startup had the technology to do “demand pricing”—that is, charge some customers more than others—he would like it.

A spokesman said the Vision Fund has “an extensive due diligence process.” He said the fund has invested in only 3% of startups it has looked at.

Early last year, SoftBank hired a consultant to interview employees and prepare a report on the fund’s culture and investment style. The findings, reviewed by The Wall Street Journal, included a word cloud showing how often the firm’s employees said certain phrases. The most frequently used terms include “rule breaking,” “secrecy” and “lack of trust.” A few positives, “fun” and “good,” appeared about as often as “turf wars,” “hubris,” “politics” and “posturing.”

An internal presentation showing the results of a consultant’s report last year on the fund’s culture and investment style.

One executive told the consultants that entrepreneurs seeking investors were taking advantage of the fund’s disorganization and loose vetting, warning that “people are actively hiding deals from each other.” A second said: “We have an incredible opportunity to make [a] significant impact that we will squander if we don’t fix our culture.”

The firm has since established three cultural principles—teamwork, integrity and impact—that are assessed at quarterly off-site meetings and programmed into the touch screen on the SoftBank-manufactured robot, Pepper, that greets guests at the fund’s headquarters. An internal Slack channel labeled #Praise encourages employees to recognize positive actions by their colleagues.

“Like all fast-growing companies, we faced some challenges early on,” the Vision Fund spokesman said. He said words such as “improving” and “collaborative” are among the most common in more recent surveys.

The Vision Fund’s most pressing problem is WeWork, which recently canceled its planned IPO, pushed out its founder and CEO, and announced plans to fire thousands of employees. Last week, SoftBank took control of WeWork, agreeing to lend $5 billion to the company and installing Mr. Son’s second-in-command,

Marcelo Claure,

as chairman and head of the turnaround effort.

SoftBank’s history with WeWork highlights the unusual nature of the Vision Fund. Mr. Son was so taken with WeWork’s founder,

Adam Neumann,

when they met in 2016 that he offered to invest $5 billion, according to people familiar with the matter.

The Vision Fund’s biggest investors, Saudi Arabia and Abu Dhabi, wary of making such a big bet on a money-losing startup, threatened to block the deal, as is their right with any investment above $3 billion, the people familiar with the matter said. Mr. Son instead gave Mr. Neumann just under $3 billion and promised more funds in the future, telling associates he believed WeWork would be worth $1 trillion.

When Mr. Son last fall began planning another investment in the company of up to $15 billion, Mr. Misra and other top Vision Fund executives lobbied against it, according to current and former executives. WeWork was losing too much money and expanding into areas, like residential real estate and education, in which it had no expertise or edge, they argued.

The Vision Fund partner overseeing the WeWork investment,

Vikas Parekh,

last year began documenting his concerns about the company’s business model. He raised them last year with Mr. Neumann, who barred him from at least one WeWork meeting, said people familiar with the matter.

Mr. Son was so taken with WeWork’s founder, Adam Neumann, when they met in 2016 that he offered to invest $5 billion.


Photo:

Kelly Sullivan/Getty Images

All in, the Vision Fund invested $4.4 billion in WeWork—a stake it now expects to write down by $3 billion, according to a person familiar with the plan. SoftBank, the fund’s Japanese-listed parent company, agreed to invest as much as $6 billion, some of it at a valuation of $47 billion—six times what the recent emergency financing deemed the company to be worth.

Mr. Son has talked publicly about having a series of Vision Funds, and in private conversations with potential investors, Mr. Misra has said his aim is to be bigger than

Blackstone Group Inc.,

the largest alternative-asset manager in the world, with more than $550 billion under management.

The sliding investments imperil those plans. WeWork’s failed IPO has helped cool the once-hot IPO market, which the Vision Fund relies on to cash out of its investments. That, in turn, has endangered Vision Fund II.

In July, SoftBank announced it would put $38 billion into the second fund, and that it had $70 billion of commitments from outside investors. Those commitments weren’t binding. SoftBank signed letters that allowed the parties to walk away—and in the wake of the WeWork debacle, some have.

Those include Singapore’s GIC, which had signaled it would invest $2 billion in the second fund, and the investment arm of Koch Industries, the private conglomerate run by influential Republican donor

Charles Koch

and his late brother, David, which had been in talks for a $1 billion contribution, according to people familiar with the matter.

The $40 billion the Vision Fund had penciled in from Taiwanese pension funds and asset managers is unlikely to materialize. Its agreements weren’t with those investors themselves, but with Taiwanese brokers that serve them, people familiar with the matter said.

The Saudi Arabia and Abu Dhabi investment funds remain on the fence. During recent visits from Messrs. Son and Misra, they tentatively agreed to reinvest profits they receive from the first Vision Fund into a second one, according to people with knowledge of the discussions.

Saudi Crown Prince Mohammed bin Salman and SoftBank’s Masayoshi Son at the Future Investment Initiative conference in Riyadh, Saudi Arabia, in 2017.


Photo:

faisal nasser/Reuters

The Vision Fund’s employees are on the hook if the value of the fund declines substantially. Last year, the Vision Fund rolled out a compensation plan under which SoftBank will lend employees money to buy units in the fund. Borrowers must offer personal guarantees on the loans.

Mr. Son has signed up to borrow more than $3 billion, a person familiar with the matter said. Mr. Misra and other top SoftBank executives, including Mr. Claure and SoftBank’s head of investments,

Ron Fisher,

have borrowed a combined total of several hundred million dollars.

Mr. Misra is taking a more cautious approach going forward. The Vision Fund no longer will make giant bets on single companies, and Mr. Misra has promised investors the next fund will be spent over five years, rather than the two it took to run through the first. Executives will be held more accountable for the deals they champion.

It narrowly avoided a dud in e-cigarette maker Juul Labs, which once was valued at $40 billion but now is facing a public backlash over the health risks of vaping. Mr. Misra, who often travels with a Juul and a fully charged spare, nixed the investment on concerns about its marketing to teens.

He and Mr. Son remain optimistic. A recent presentation to investors about the Vision Fund’s stable of startups showed a chart with an arrow, surrounded by rainbow-colored unicorns, zooming up and to the right.

Write to Liz Hoffman at liz.hoffman@wsj.com and Bradley Hope at bradley.hope@wsj.com

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