Softbank vision fund was poorly designed.
At a 100 billion size, the fund must deploy a ton of money to create venture returns. Assuming a 10 year maturity and 5 years of investment period, they would need to deploy 20 billion per year into companies just to run the fund. If you invest in 100 companies then check-size must be a few hundred million to billions of dollars.
Implications:
They then pushed companies to expand way faster then was appropriate. This meant that companies made decisions that was not justified by the profitability, just because they needed to spend the money.
An example would be when WeWork started offices in most expensive areas of manhattan and served them to customers at effective discount, hoping that the market would shift. Originally, WeWork took office space in distressed areas and made them viable for companies to use at a markup--creating value and being profitable overall. Under the pressure, they made stupid unprofitable decisions. Under this environment, even solid companies are forced to spray and pray money.
Generally speaking, money brings greater velocity but founders and investors should understand if the market will change at the same rate. For WeWork, commercial office space has leases with lengths of 5-10 years. Bottomline, there is not enough "liquidity" to absorb that quick an expansion.
Implications: They then pushed companies to expand way faster then was appropriate. This meant that companies made decisions that was not justified by the profitability, just because they needed to spend the money.
An example would be when WeWork started offices in most expensive areas of manhattan and served them to customers at effective discount, hoping that the market would shift. Originally, WeWork took office space in distressed areas and made them viable for companies to use at a markup--creating value and being profitable overall. Under the pressure, they made stupid unprofitable decisions. Under this environment, even solid companies are forced to spray and pray money.
Generally speaking, money brings greater velocity but founders and investors should understand if the market will change at the same rate. For WeWork, commercial office space has leases with lengths of 5-10 years. Bottomline, there is not enough "liquidity" to absorb that quick an expansion.