SoftBank Cuts Back Spending, Leaving Startups Desperate for Cash
Apr 25, 2022
According to people familiar with the matter, Light, which is backed by SoftBank Group Corp., has been unable to raise additional funding after the world's largest tech investor declined to invest more.
Light was injected with $121 million from SoftBank's first Vision Fund in 2018. The company owned about 30% of the startup back then. SoftBank's continuing support for the cash-strapped startup is vital. The startup had been investing millions into self-driving technology with SoftBank's support.
Affected by the decline in tech valuations, SoftBank is walking away from some of its loss-making portfolio companies to adhere to stricter investment standards, according to the sources, who asked not to be identified because the matter was not in the public domain. There are 300+ companies in the portfolio of the two Vision Funds, many of which are losing money.
An investment firm in Japan offered to help Light if it could find another investor to lead the next round, one of the sources said. According to the source, other investors were leery of investing in the company since its biggest backer offered only a token sum. Startups based in Redwood City, California, have contracted a consulting firm to consider various options, including winding down operations.
"Their wallets are tighter than ever before," the insider said.
A spokesperson for Vision Fund and Light's CEO Dave Grannan did not respond to a request for comment.
With the deployment of billions of dollars from Saudi Arabia and Abu Dhabi sovereign wealth funds into startups, SoftBank's Vision Fund is rewriting the rules of venture capital, a radical shift from its past freewheeling largess.
For a long time, Masayoshi Son, SoftBank's founder and CEO, was convincing startup founders to accept Vision Fund money by encouraging them to think bigger and promising to support them in their expansion efforts. If a founder wanted to accelerate the growth of their company, he would often invest more money than they needed.
When the billionaire approved Light's investment, he made it clear that his interest was based on the startup's ability to adapt its depth-sensing imaging technology for self-driving vehicles - something Light's founders had never contemplated before.
The man saw the value in autonomous driving, Grannan told Bloomberg in 2018. "Masa was convinced the technology could be a game changer."
Following the initial investment from the Vision Fund, Light was introduced to other portfolio companies in the automotive technology sector, including self-driving startup Cruise LLC and ride-hailing firms Uber Technologies Inc. and Grab Holdings. During a drastic pivot to meet Son's demands, Light laid off about half its staff and eliminated its original smartphone-camera team.
The self-driving startup struggled to win quick contracts due to the long commercialization time for its technologies.
In the early years following the launch of the Vision Fund in 2017, SoftBank raised the valuation of startups such as WeWork and Uber by billions of dollars, adhering to a minimum budget of $100 million per deal.
Despite winning over hundreds of entrepreneurs with its big bet on long-term growth, SoftBank was exposed to enormous volatility in tech shares and mounting debt, all the while its pot of new share sales was drying up.
Next month, Redex Research analyst Kirk Boodry estimates, the company may report its biggest quarterly loss ever due to the plunging value of its most valuable investments, including Coupang Inc. in South Korea and Didi Global in China.
Another source familiar with the talks between SoftBank and Light noted that Light's investment now makes up less than 0.1% of the Vision Fund's total portfolio. The Vision Fund, whose stake in Cruise was sold last month, has become less interested in self-driving technology over time.
On an earnings call in February, Son stated that the Vision Fund would invest, but at a slower pace because publicly traded companies' share prices were crashing amid lofty valuations for privately held companies.
According to him, many venture capital firms, in addition to his, are renegotiating terms with companies seeking funding. „We are considering the entire picture, while operating within the limits of our available cash.“