The Vision Fund’s Investment Pace Slows

Morning Markets: As the year starts to wrap, a quick digest of the Vision Fund’s investment cadence.

While the market digests SoftBank’s profit-free earnings report, replete with financial carnage in the wake of l’affaire WeWork, the Vision Fund’s investment pace is slowing.

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According to Crunchbase data, the Vision Fund’s investment cadence slowed from 13 known deals in Q4 2018, to 12 in Q1 2019, to 11 in Q2 2019, to six in Q3 2019. So far in Q4 2019 the world-bending investment vehicle has executed just one known deal.

This results are unsurprising given that the Vision Fund has deployed over $70.7 billion in capital thus far, putting it far closer to the end of its capital runway than the beginning; that said, it’s notable that the Vision Fund 1 — a similarly-sized sibling waits in the wings — appears to be winding down its deal pace.

In its earnings report, SoftBank said the following, regarding the Vision Fund:

The investment period was ended on September 12, 2019, after the accumulated investment amount exceeded 85% of total committed capital. The remaining capital is reserved for follow-on investments, etc.

A New Chapter

We joked earlier that a recent change in focus felt like the end of the Vision Fund era. That was a stylistic point, a looming cessation of the rapid-fire dealmaking featured in the early days of the Vision Fund’s life.

Instead, SoftBank’s words and data indicate that we’re entering the later innings of the Vision Fund 1’s full game. Here’s the Vision Fund’s investment pace made into a chart:

Now, a caveat. Some apparent slowdown was expected as there is a lag in venture deal reporting; there could easily be a Q4 2019 deal or two that has happened but isn’t yet publicly known. So while SoftBank says that it’s slowing down its dealmaking from the Vision Fund and the data agrees, there may be more coming.

For Startups

It will be interesting to see what happens to super late-stage startups as the Vision Fund begins to wrap itself up. Will they shrivel up and die? Probably not, but there will be less capital in the market, affecting how much startups raise, how fast they grow, and how long they can afford to stay private.

It’s unclear how likely it is for the Vision Fund 2 to come into existence. SoftBank’s earnings featured the company’s first loss in memory. It’s hard to blame the company if it wants to (or has to) take a break from cutting billion-dollar checks.

But a big gap in giant rounds from SoftBank would affect the private market, which has almost become conditioned to there being Vision Fund-esque money laying around.

If there’s no Vision Fund, the new reality could — somewhat ironically — lead to more IPOs. Don’t forget that IPOs are financing events, chances for companies to raise lots of public money. Without SoftBank writing giant checks, it’s possible that upstarts that would have preferred to raise from the Vision Fund (1 or 2, really) would instead turn to the public to crowdfund, so to speak.

There’s also the possibility another Vision Fund could invest in a more conservative fashion. That would be a change of its own, altering the startup fundraising landscape in the opposite manner of its predecessor. SoftBank’s Vision Fund is so associated with huge fat checks that people would struggle to know what to do if the fund cut its check size, and turned the screws on profitability.

Illustration: Dom Guzman