is leaning on its employees, including Chief Executive
for cash as the firm rushes to raise an ambitious technology fund amid volatile markets.
The Japanese company plans to lend up to $20 billion to its employees to buy stakes in its second giant venture-capital fund, according to people familiar with the matter. Mr. Son may account for more than half of that amount, some of the people said.
It is an unusual setup that would doubly expose SoftBank to a startup economy that is starting to show cracks. The IPO window, which appeared wide open early this year, may be closing as markets tumble and public investors grow weary of loss-making startups.
At $20 billion, the employee pool would represent nearly a fifth of the money that SoftBank said last month it had lined up for its second Vision Fund, a successor to a $100 billion fund that launched in 2017 and is nearly spent. Adding in its own contribution to the second fund of $38 billion, SoftBank could make up more than half of the money raised, far more than is typical for a fund sponsor.
A Vision Fund spokesman didn’t comment.
SoftBank announced it has $108 billion from investors including
, the government of Kazakhstan and half a dozen banks. Those commitments aren’t binding and are being finalized during a tumultuous stretch for startups, including some of the Vision Fund’s largest investments.
have fallen 30% since the company went public in May. The stock now trades below the roughly $35 level that SoftBank paid to acquire its stake, according to people familiar with the matter.
WeWork, another big Vision Fund investment, filed this week to go public, disclosing losses that are enormous and growing fast, even by Silicon Valley standards. It will need large sums of cash for years as it builds out offices, which could affect its most recent $47 billion valuation, which one analyst called “very hard to swallow” in light of the company’s huge losses.
Most investment funds simply give their employees a share of the profits as part of their compensation. Investors like to see such “skin in the game.”
But SoftBank is instead lending to staff—it has about 400 employees—to buy those stakes. It did the same thing for the first fund, which now includes about $8 billion of employee money, people familiar with the matter said. The lending adds leverage to the fund’s already risky investments and highlights the unusually close relationship between SoftBank and the fund.
SoftBank executives believe this will make employees more accountable because the fund investments can be canceled if a manager leaves or is found to have done a reckless deal, according to people familiar with their thinking. SoftBank also believes its large commitments to the Vision Fund are a selling point because it aligns its own interests with those of outside investors.
If startup valuations remain high and the Vision Fund’s companies grow and go public, employees could pay back their loans with gains from the fund stakes. But if it falters, SoftBank could lose money on the loans.
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Much of Mr. Son’s wealth is tied up in his shares of SoftBank itself, which he could be forced to sell to repay the loans. The loans are expected to carry an interest rate of about 5%, one of the people said.
Other investors in the fund include the government fund of Kazakhstan, which is likely to contribute about $3 billion, people familiar with the matter said. Banks including
Goldman Sachs Group
Standard Chartered PLC and Japan’s
Mitsubishi UFJ Financial Group
have signaled they are willing to invest several hundred million dollars apiece, which bankers view as a way to get hired on deals and IPOs for Vision Fund’s portfolio companies.
SoftBank is negotiating with several pensions and insurers, including in Taiwan, for combined investments it hopes will exceed $30 billion, some of the people said. Taiwan’s insurers are searching for higher-yielding investments to help them close the gap between promised payouts for older policies and returns they are getting on investments now.
But large-scale investments could be a stretch for them because Taiwanese regulations only allow them to put a fraction of their assets into riskier investments like venture capital.
—Phred Dvorak contributed to this article.
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