Morning Markets: Layoffs at Fair mark it as the fourth known company the Vision Fund has invested in that has undergone layoffs.
SoftBank’s Vision Fund’s investment approach of putting large sums of capital to work at private companies, often providing them with fresh investment in the form of nine- and ten-figure checks is showing some weakness as 2019 begins to wrap up.
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Yesterday TechCrunch reported that Fair, a Vision Fund investee, will “be laying off 40% of its staff [… and] removing its CFO, Tyler Painter.” A company doesn’t undertake a set of changes that painful in unison unless things have gone rather poorly.
Fair, a startup that helps consumers lease cars from their phones, has raised copious capital. Inclusive of debt financing, corporate and venture rounds, Fair has raised over $2 billion from investors like Ally Financial, Silicon Valley Bank, BMW iVentures, Sherpa Capital, and Javelin Venture Partners along with both the Vision Fund and SoftBank itself, according to Crunchbase data.
But it is not alone in cutting staff. Fair has an innovative model — you can rent-buy a car for as long as you’d like under its model, and then stop rent-buying it when you desire — but that wasn’t enough to protect it from layoffs. The same could be said (notable business model followed by staff cuts) for a number of other Vision Fund-backed firms:
- Wag: A highly-funded, on-demand dog-walking service that raised $300 million from the Vision Fund in 2018 laid off 54 people earlier this year. Stories have come out noting growth and operational challenges at the firm.
- Uber: One of the Vision Fund’s largest bets, Uber’s three-part layoffs this year were big news. That the company was working to control costs as its growth slowed and its losses persisted wasn’t a surprise, but it did feel notable that a firm as wealthy as Uber was forced to go under the knife so late in its operational life.
- WeWork: The company’s impending layoffs aren’t the only time it has cut staff, but they should prove to be the sharpest cut. Estimates vary, but as many as 4,000 WeWork staffers could be fired in the coming months.
Three’s company and four is a horde, the cliche nearly goes.
This seems something like reality setting in for SoftBank and the startups it backs with ample cash.
There’s an illusion in Silicon Valley that if a company is pulling in giant fundraising rounds, they must be doing well. Just look at WeWork, its more than $12 billion it raised before it geared up to go public, and the mess that followed.
Raising huge rounds can be a a good sign, sure. It’s a sign of investor confidence in a company and some reassurance that the company will be around for a bit and hopefully do something productive with the money. But lots of venture capital doesn’t make up for an unsustainable business model (i.e.g high burn rates and no path to profitability), though it can help cover it up with a big budget for marketing and fast growth. Eventually, especially when a company slows growth, the economics of the business gets more attention and that’s when cuts happen.
SoftBank may be writing big checks like it’s not a big deal, but it isn’t doing it for charity. They’re doing it to make money in the long term.
But there have been reports that SoftBank CEO Masayoshi Son could pivot away from the firm’s current investing strategy and focus. CNBC reported that Son is considering shifting the Vision Fund’s focus away from rapidly growing startups to “companies with clearer pathways to profitability and public offerings.” With Son changing his tune, there could be fewer, smaller checks for startups and less means to grow fast.
It makes sense. No one wants to lose money on an investment, forget losing billions on multiple unprofitable companies. If Son and SoftBank go through with it, it will be hard to blame them.
Illustration: Dom Guzman.