SoftBank can get an Arm up from venture capital’s weakness

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The listing of SoftBank’s chip unit Arm Holdings was the largest global IPO last year. Its performance significantly boosted the Japanese tech investment group’s net income figure in the last quarter. The good news is SoftBank has other portfolio companies that should be able to produce positive surprises.

SoftBank’s net income of ¥950bn ($6.4bn) in the three months to December is its first profit in five quarters. It is also a significant turnaround from a ¥783bn loss in the same period a year earlier. Its Vision funds and LatAm funds achieved $4bn in investment gains for the quarter. That was enough to send SoftBank shares up 11 per cent on Thursday to their highest level in more than two years.

A 60 per cent gain in Arm shares from their November low was a big contributor. SoftBank owns about a 90 per cent stake in the UK chip designer, which now has a valuation of nearly $100bn. Arm shares were up another 24 per cent pre-market on Thursday.

Despite the impressive numbers and the investment frenzy around tech, especially artificial intelligence, SoftBank shares are down 31 per cent from their 2021 peak. Part of that reflects concerns around a large number of lossmaking start-ups in its second Vision Fund. The bankruptcy of WeWork — for which SoftBank was its biggest outside investor — is also fresh in investors’ minds.

Critics have long pointed to SoftBank founder Masayoshi Son’s propensity to make investments in the consumer sector, despite talking big about AI. Indeed, in terms of total fair value, the sector accounted for 28 per cent at the end of December of SoftBank’s investments across its Vision funds and its LatAm Fund.

Things are changing. The share of sectors including frontier technologies, enterprise and fintech is growing, together accounting for about a third.

The number of listings of its portfolio companies looks set to rise too. Its gross multiple of invested capital of 1.6 times should grow as key investments, including ride-hailing company DiDi Global and TikTok-owner ByteDance, go public.

SoftBank’s portfolio companies have continued to attract external investors. New funding rounds across the portfolio have resulted in $8.2bn in additional capital in a year.

Son now also has probability on his side. While the total size of new investment activity by SoftBank has shrunk, it is still investing.

And at a time when global venture capital funding to start-ups has plunged globally, SoftBank’s likelihood of scoring promising companies at a decent price should, even without any great investment nous, get an arm up.