Big gamble on OpenAI, Masayoshi Son has "turned the tables" again
OpenAI has been reported to be negotiating a new round of financing at an astonishing valuation of $500 billion, directly driving SoftBank's stock price to a historic high, with a cumulative increase of about 75% this year. SoftBank has invested $9.7 billion in OpenAI through its Vision Fund 2 and plans to add another $22.5 billion by the end of the year, a massive bet that is expected to offset much of the fund's significant losses
The Vision Fund 2 suffered a massive loss of $22 billion, but the soaring valuation of OpenAI has driven SoftBank's stock price to a new high, with Masayoshi Son once again performing a dramatic turnaround from the brink of crisis.
On Tuesday, SoftBank Group's stock price reached a historic high of 14,825 yen, with the company's market value hitting $146 billion, and its stock price has risen approximately 75% this year. All of this is thanks to Masayoshi Son's big bet on OpenAI.
On August 12, according to The Information, OpenAI is in talks with investors, including Thrive Capital, regarding the sale of employee equity, with the company's valuation reaching $500 billion—doubling from its most recent round.
This leap in valuation has nearly doubled SoftBank's previous book investment value of $9.7 billion in OpenAI, which is crucial for offsetting the Vision Fund 2's cumulative investment losses of up to $22 billion.
A High-Leverage Gamble
The performance of SoftBank's Vision Fund 2 has been incredibly poor. Since its launch in 2019, the fund has incurred cumulative losses of $22 billion across investments in 280 different companies, accounting for nearly one-third of its invested capital.
However, the investment in OpenAI is expected to change this situation. SoftBank's investment in OpenAI employs its typical "Masayoshi Son-style" high-leverage approach.
Reportedly, SoftBank acquired shares in OpenAI through complex financial maneuvers—the Vision Fund 2 borrowed billions of dollars from SoftBank itself, which in turn borrowed from Japanese banks. At the same time, the fund also secured billions in loans from private lending institution Apollo, which will receive priority repayment.
The stakes are even higher. SoftBank is expected to make an additional investment of $22.5 billion in OpenAI by the end of this year, with this deal locked in at a valuation of $260 billion for OpenAI. If the deal goes through, SoftBank could hold up to 12% of OpenAI.
This also means that SoftBank may already be in profit before investing this amount, but this requires OpenAI to complete its transition to a for-profit structure.
It is currently unclear whether this $22.5 billion in future equity will be held on the Vision Fund 2 or on SoftBank Group's balance sheet. SoftBank executives have stated that no decision has been made yet, but this choice will directly affect the investment returns for SoftBank shareholders and Masayoshi Son personally.
Masayoshi Son's "Personal Gamble"
Unlike the first Vision Fund, there are no external investors involved in Vision Fund 2. After the fund failed to raise external capital, Masayoshi Son secured a 17.25% stake for himself.
This arrangement deeply ties his personal wealth to the fund's performance. Public documents in Japan show that Masayoshi Son has also pledged approximately 9 million shares of his personally held SoftBank stock as collateral for loans However, according to the fund terms, he cannot receive any distribution until the fund's realized and unrealized value exceeds the investment cost by 30%. Considering that the fund is currently still in a state of severe loss, this remains a distant goal.
Masayoshi Son's personal shareholding arrangement has raised concerns about corporate governance. David Gibson, a stock analyst at MSFT Financial, told the media that this arrangement reduces the potential returns shareholders could gain from the investment in OpenAI, "From a corporate governance perspective, this is a disaster."
High Concentration Risk Under the Shadow of WeWork
This massive investment also puts SoftBank at risk of high concentration once again. If the additional investment is completed, OpenAI could account for 34% of the total scale of Vision Fund II.
This inevitably brings to mind SoftBank's disastrous investment in WeWork a few years ago. After that, the fund's financial officer promised to ensure that the fund would not be "overly concentrated." Now, SoftBank seems to be betting heavily on a single star project once again.
At present, this investment is heading towards a huge victory. But as reports have pointed out, it could also end in a similar tragedy
