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Business

SoftBank to lend founder and employee billions to invest in funds




SoftBank Group


9984 -1.11%

utilizes its employees, including CEO

Masayoshi son,

for cash as the company rushes to acquire an ambitious technology fund amid unstable markets.

The Japanese company plans to lend up to $ 20 billion to its employees to buy shares in the second giant venture capital fund, according to people familiar with the matter. Mr. Son can make up more than half that amount, some of the people said.

It is an unusual setup that will double expose SoftBank to a startup economy beginning to show cracks. The IPO window, which is due to open early this year, may be closing as markets tumble and public investors tire of loss-making startups.

At $ 20 billion, the pool of employees would make up nearly one-fifth of the money SoftBank said last month it had set up for its second Vision Fund, a successor of a $ 1[ads1]00 billion fund that was launched in 2017 and is almost used. By adding its own contribution to the second $ 38 billion fund, SoftBank could make up more than half of the money raised, far more than is typical of a fund sponsor.

A Vision Fund spokesman did not comment.

SoftBank announced that they have $ 108 billion from investors included

apple
Inc.,

Microsoft
Corp

, the government of Kazakhstan and a half dozen banks. These commitments are non-binding and will be terminated during a violent start-up phase, including some of Vision Fund's largest investments.

Shares of

Uber Technologies
Inc.

has fallen 30% since its release in May. The stock is now trading below the roughly $ 35 level SoftBank paid to acquire its stake, according to people familiar with the matter.

WeWork, another major Vision Fund investment, filed this week to go public, revealing losses that are huge and growing rapidly, even by Silicon Valley standards. It will need large sums of money for years to build offices, which could affect the latest valuation of $ 47 billion, which an analyst called "very difficult to swallow" in light of the company's huge losses.

Most investment funds simply give their employees a share of the profits as part of the compensation. Investors like to see such "skin in the game."

But SoftBank instead lends to employees – it has about 400 employees – to buy the shares. It did the same for the first fund, which now includes about $ 8 billion in workers' money, said people familiar with the matter. The loan adds leverage to the Fund's already risky investments and highlights the unusually close relationship between SoftBank and the Fund.

SoftBank executives believe this will make employees more responsible because fund investments can be canceled if a manager leaves or is found to have made a ruthless deal, according to people who are familiar with their thoughts. In addition, SoftBank believes that the major obligations of the Vision Fund are a selling point because it aligns its own interests with the investors outside.

If startup ratings are still high and Vision Fund's companies grow and become public, employees can repay their loans with profits from the fund's share. But if it breaks, SoftBank can lose money on the loans.

Share Your Thoughts

What do you think of SoftBank's strategy of lending money to its employees to invest in their new venture? Join the conversation below.

Much of Mr. Son's wealth is tied up in his shares in SoftBank himself, which he may be forced to sell to repay the loans. The loans are expected to have an interest rate of about 5%, one of the people said.

Other investors in the fund include the Kazakh State Fund, which will probably contribute about $ 3 billion, people familiar with the matter said. . Banks included

Goldman Sachs Group
Inc.,

Standard chartered PLS and Japan's

Mitsubishi UFJ Financial Group
Inc.

has signaled that they are willing to invest hundreds of millions of dollars a piece, something bankers see as a way to get hired on deals and IPOs for Vision Fund's portfolio companies.

SoftBank is negotiating with several pensions and insurance companies, including Taiwan, for combined investments it hopes will exceed $ 30 billion, some of the people said. Taiwan's insurance companies are looking for higher-return investments to help close the gap between promised older policy payouts and the return on investment they are getting now.

But large investments can be a stretch for them because Taiwanese regulations only allow them to put a fraction of their assets in riskier investments such as venture capital.

Write to Liz Hoffman at liz.hoffman@wsj.com and Bradley Hope at bradley.hope@wsj.com

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