Is Softbank the Next Enron?

SoftBank’s bizarre strategy to lend money to its employees in order for them to invest in its new venture

Source: Casey Botticello of Passion Economy Guide

SoftBank is looking to its employees, including Chief Executive Masayoshi Son, for cash as the firm rushes to raise an ambitious technology fund amid volatile markets.

CNBC reported that the Japanese company plans to lend up to $20 billion to its employees to buy stakes in its second giant venture-capital fund. Mr. Son may account for as much as $15 billion of that amount, according to sources.

At $20 billion, the employee pool would represent nearly a fifth of the money that SoftBank said in July it had lined up for its second Vision Fund, a successor to a $100 billion fund that launched in 2017 and is nearly spent.

This bizarre financial scheme raises a number of questions:

• We Work will require additional funding which could effect its “$47 billion valuation.” Therein lies the fallacy of determining the “value” of profitless ventures by simply relying on VC funding and resulting equity ownership. When you adjust for the burn rate the math changes rather materially. Put another way, who would write a $47 billion cash check for a 100% stake in We Work with no intention to IPO it (which is to say, sell)?