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SoftBank’s vision fund loses billions, how this impacts the startup ecosystem

(BUSINESS FINANCE) Pizza making robots and cannabis start-ups are among the many non-tech companies losing venture capital because of Softbank’s vision fund collapse.

vision fund loss

One day you are eating free lunch, drinking beer after hours and slacking on your company phone. The next day you are handed your walking papers.

Life at a start-up has always been turbulent. As more Unicorns have IPO bids falling flat – Uber, Lyft and Casper – and funding sources drying up, start-up life has grown stormy.

While things may not be as bad as they were at the start of the 2000s, the last quarter of 2019 and the start of 202 has proven challenging. Many of the companies that have sent thousands of employees packing were backed By SoftBank, a Japanese firm which had $100 billion Vision Fund specifically for start-ups.

According to this story in the NY Times, during February 2020, SoftBank reported its Vision Fund and other investments experienced $2 billion in operating losses in the last quarter of 2019. The Times speculates that the pullback in funding will not be as harsh as it was at the start of the 2000s and some companies – particularly those in the tech field – will continue to be lucrative, raise interest and capital.

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In some cases, SoftBank was writing checks it couldn’t cash for companies like Zume, a San Francisco start-up that was known for its pizza making robots. The company saw a huge influx in funding from SoftBank, only to have the funding stop. Employees felt they “got screwed” by SoftBank because it didn’t provide additional funding to boost the $375 originally raised, according to CNN Business.

“There’s no doubt that there’s an excess amount of capital in the private markets and that it has been exacerbated by SoftBank’s Vision Fund,” Kathleen Smith, a principal at Renaissance Capital, which manages IPO-focused exchange-traded funds, told CNN.

Because of the size of SoftBank’s VisionFund it was positioned to take risks, but those gambles didn’t always pay off, said David Erickson, a senior fellow in finance at the University of Pennsylvania’s Wharton School in the CNN story. The Vision Fund premise was “ill-conceived from the get-go,” Erickson said in the story.

Companies from different spheres, whether food delivery, mattresses, scooters or cannabis are facing losses in cash and employees. Airbnb and Door Dash were expected to go public this year, but both are losing money. Cannabis start-ups will be weeded out as many are not expected to survive the year.

The NY Times cited data from PitchBook, which stated more than 300 cannabis firms had raised $2.6 billion in venture capital during 2019 only to have investors take a second look. With investors doubting cannabis companies could deliver the goods legally, funding dried up and staffs were cut back.

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Meanwhile, many employees who once were drinking the start-up cool aid are now leery to work for the companies, which offer perks galore one day only to slash staff the next.

Mary Ann Lopez earned her MA in print journalism from the University of Colorado and has worked in print and digital media. After taking a break to give back as a Teach for America corps member and teaching science for a few years, she is back with her first love: writing. When she's not writing stories, reading five books at once, or watching The Great British Bakeoff, she is walking her dog Sadie and hanging with her cats, Bella, Bubba, and Kiki. She is one cat short of full cat lady status and plans to keep it that way.

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