SoftBank puts blockchain investments on hold as part of startup pullback

SoftBank Group is unlikely to invest in cryptocurrency or other blockchain business through the first half of 2023, sources familiar with the Japanese conglomerate’s Vision Funds say. Forbes.

The break started sometime last year. “One of the partners there said, ‘Hey, we’re completely on the sidelines for the rest of the year, maybe for the first quarter or two,'” said a source familiar with SoftBank’s investments who requested anonymity.

Another source familiar with the technology-based conglomerate led by Masayoshi Son, who also requested anonymity, said Softbank is concentrating on “long-term” projects and that the Vision Fund team “continues to evaluate opportunities.”

A dire quarterly report, including a loss of $5.9 billion in the company’s third quarter and a drop of over 90% in startup investments, combined with falling crypto market capitalization, has dashed expectations of high returns in the digital asset sphere.

SoftBank did not respond Forbes request for comment.

Interested in reading more? Subscribe to Forbes‘ CryptoAsset and Blockchain Advisor here.

Analysts at Macquarie Capital attributed the drop in start-up investment in part to portfolio companies’ available cash — 94% of SVF portfolio companies have enough cash to fund their operations for the next year, according to a Feb. 15 analysis.

But the company has not publicly invested in any crypto-related projects since June, when Vision Fund 2 led a $66 million round for InfStones, a blockchain infrastructure company. Vision Fund 2, home to the majority of SoftBank’s crypto and blockchain portfolio companies, has lost $16.7 billion since its inception in June 2019 on $49.9 billion invested, according to a February report. The company has lost $34.5 billion across its Vision Funds since the start of its fiscal year in April.

“Expect new investment to remain close to non-existent for now for SoftBank,” said Rolf Bulk, equity analyst at Singapore-based New Street Research. “I expect them to remain very defensive.”

Some businesses that had previously raised capital from SoftBank have turned to alternative sources.

Non-fungible token studio Candy Digital, home of Major League Baseball’s official NFT collection, raised $100 million from SoftBank in its October 2021 Series A funding round, which the company said valued it at $1.5 billion. But a Series A expansion in January brought in just $38.4 million from three venture capital firms: Galaxy Digital, 10T Holdings and ConsenSys. Candid did not disclose terms of the deal, but people familiar with the matter agreed with a CNBC report that said the round came after Fanatics, Candy’s former parent, decided to sell its stake. Candy did not update the valuation and Softbank did not participate.

LinkedIn data also revealed that SoftBank investor and former Candy Digital board observer Aaron Wong left his position in January. Wong did not respond to a request for comment.

It is not surprising that a large investment vehicle like Softbank’s Vision Fund 2, which with $56 billion in commitments is one of the largest technology funds in the world, looking to step away from the high-risk, volatile world of investing in crypto companies, especially after a painful year for the industry. Softbank Vision Fund (SVF) investments lost $33.5 billion in the first half of 2022 before the collapse of crypto exchange FTX led the firm to write down its $100 million investment in the exchange to zero.

During the rise of crypto venture capital funding in 2021 and early 2022, Vision Fund 2 invested in 14 companies, in rounds of up to $450 million. “These are people who really didn’t look at their checkbook when they wrote their checks,” said the first source familiar with SoftBank’s investments.

Still, crypto and blockchain investments make up less than 1% of Vision Fund holdings, says Paul Golding, senior payments and digital commerce analyst at Macquarie Capital. There is a “continued interest in investing in the baseline infrastructure around blockchain that can enable future financial products and services and other technologies,” he adds. “But overall, their exposure is quite cautious.”