China Troubles Boomerang On SoftBank’s 2021 Vision

Other than founder Jack Ma, arguably no one has more reason to be despondent about Alibaba Group’s 52% stock loss over the last year than Masayoshi Son.

SoftBank billionaire Son, after all, did more than virtually anyone else to help Ma, then an obscure English teacher in Hangzhou, create China’s most important tech startup. That was back in 2000, when Son handed Ma $20 million of seed money.

The bet paid off spectacularly. When Ma took his e-commerce juggernaut public in New York in 2014, Son’s Alibaba stake was worth $50 billion. Son hasn’t looked back since. Three years later, he founded the $100 billion Vision Fund to attempt to strike financial lightning again.

Things had been plodding along reasonably well. There were some big stumbles—like Son’s perplexing affection for office-sharing outfit WeWork. But Son will almost certainly remember the last 12 months as the most dreaded of his value-investing career, courtesy of China’s clampdown campaign.

Oh, the irony. The mainland tech sector that Ma’s bold bet 21 years ago helped create is now doing increasing damage to SoftBank’s 2021. President Xi Jinping’s crackdown on Big Tech began with Ma in the October-November 2020 period. It included scrapping a $37 billion initial public offering by Ma’s Ant Group that was to be history’s biggest.

Son also was a big backer of ridesharing giant Didi Global, which is now carrying out a forced delisting, just five months after its blockbuster New York debut. It’s not all China. U.S. regulators are trying to stop SoftBank’s sale of semiconductor company Arm Ltd. to Nvidia Corp. Son had been expecting a huge windfall of rough $80 billion from the transaction.

Much of the 30% drop in SoftBank Group shares over the last 12 months, though, bears Beijing’s fingerprints. And this dynamic is sure to follow Son’s market capitalization troubles into 2022. Xi, after all, seems to be far from done reining in China’s Big Tech, property, education and other sectors. Nor can we know which industries Beijing will go after next.

Given the opacity surrounding Xi’s government, and the scale of his political ambitions, the year ahead could be a chaotic one. Xi is angling to secure an unprecedented third term as party leader. If that requires, in his mind, increasing state control over a private sector he once pledged to free, then so be It.

The good news for Son is that his Vision Fund is reasonably diversified around the globe. It’s dropped big money in Brazil, Columbia, India, Germany, Indonesia, Kenya, Singapore, South Korea, Switzerland, Taiwan, U.K., U.S. and elsewhere.

The bad news: China bets might continue to haunt Son’s medium-term future. Xi’s government is investing trillions of dollars to own the future of aerospace, artificial intelligence, automation, biotechnology, digital currencies, electric vehicles, 5G advancements, renewable energy, robots, semiconductors and creating new tech unicorns.

These are all areas Son needs to invest if he’s serious about profiting off the “singularity,” or the moment when computers outthink humans. Of course, Son has a reputation for talking very big. Including claiming that he has a 300-year time horizon for investing.

Fair enough. But much of what will drive that future will arguably come out of Xi’s “Made in China 2025” extravaganza. So will, it follows, Son’s ability to position his fund to stay relevant and to influence the next wave of tech unicorns and disruption in general.

And the Xi era is proving to be as chaotic as they come. Few international funds are as exposed to what happens next in Beijing’s regulatory crackdowns than Son’s. It hardly helps that the Vision Fund is arguably the globe’s most influential venture capital player. Its fortunes could change the trajectory for risk taking everywhere.

That’s as true of India as any major economy. Earlier this month, Son said: “Just this year alone, we have invested $3 billion into India. We are the biggest foreign investor in India. We are providers of about 10% of the funding of all the unicorns—firms valued at $ 1 billion or more—in India.” Son estimates that Softbank-backed firms have created more than 1 million jobs in Asia’s No. 3 economy.

China uncertainty even has Son pivoting to his home market in Japan. Here, there’s a bit of irony, too.

Along with recreating that Alibaba magic, the Vision Fund was an effort to diversify away from Japan’s aging and rigid economic system. As Son has noted, Japan lost the innovative edge that once drove growth. Yet in recent months, Son unveiled plans to build a VC team to root around Japan for worthy startups.

So is Kathy Matsui of Goldman Sachs Japan fame. In mid-2021, Matsui opened her own VC outfit with three other prominent female executives. Her MPower Partners is on the lookout for disruptive young companies championing environmental, social and governance, or ESG, principles.

Yet Japan’s recovery from the Covid-19 era is largely tied to how well Xi’s economy performs. And that’s an open question given Beijing’s efforts to deleverage the economy, particularly a property sector that grew too frothy for comfort in recent years.

Nearly simultaneously, China’s leaders moved to take the tech industry down a few pegs, starting with Ma. There’s an argument that Beijing wants to avoid the tail wagging the dog problem facing the U.S., where giant platforms from Facebook to Google to Amazon bend the political system to their will.

Yet the opaque and scattershot way Beijing’s tech takedown played out sowed confusion and dented confidence. The putsch may serve Beijing’s near-term interests, but the upshot could be a less innovative and entrepreneurial China going forward.

Asia’s biggest economy moving backward would augur poorly for SoftBank’s VC ambitions. Even more so for the future of 1.4 billion Chinese.