How The Vision Fund Has Transformed Silicon Valley And Startups

Oct 17, 2019
Originally published on October 17, 2019 6:59 pm
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The company called WeWork is in trouble. Yes, it raised more than $10 billion over the past two years, but now the workspace-sharing company is reportedly just months away from running out of money. Now, most of their funds came from a single venture capital fund called the Vision Fund. Jacob Goldstein from our Planet Money podcast has this look at the Vision Fund's impact not just on WeWork but on many of the billion-dollar startups that have transformed Silicon Valley.

JACOB GOLDSTEIN, BYLINE: A big venture capital fund used to be a few billion dollars. Then the Vision Fund launched in 2017 with $100 billion. It was so much bigger than traditional funds that it wasn't just different in degree. It was different in kind. Patricia Nakache works at Trinity Ventures, a venture capital firm in Silicon Valley. She told me a story about the Vision Fund and a company called Wag!.

PATRICIA NAKACHE: It's an on-demand dog-walking service. It's like Uber for dog-walkers.

GOLDSTEIN: In 2017, Nakache considered investing $10 million in Wag!. She studied the business, and she found it was growing, but...

NAKACHE: It wasn't clear that it was going to work long-term for a large number of people.

GOLDSTEIN: It just seemed too early to invest $10 million, so Nakache passed, and then a few months later, the Vision Fund invested in Wag!. They didn't invest 10 million or 20 million. How much did they invest?

NAKACHE: Three hundred million.

GOLDSTEIN: The Vision Fund is run by the CEO of SoftBank, a Japanese telecom firm, and the fund raised a lot of money from Saudi Arabia. The fund declined our request for an interview, but Patricia Nakache says there was a logic behind the fund's massive investments in companies like Wag! and WeWork.

NAKACHE: The notion was we are going to give the companies we invest in an unfair advantage.

GOLDSTEIN: Because you can hire more engineers. You can sell your product cheaper at a bigger loss. You can use the money just to smoke your competitors.

NAKACHE: Right. Leave them in the dust.

GOLDSTEIN: Soon other investors started to follow the Vision Fund. A few months after Wag! got 300 million, another dog-walking service raised 155 million from another fund, and the arms race was on. Companies started competing to raise massive amounts of money by telling the most audacious story about how big they could get and how fast, and no one was better at telling this story than Adam Neumann, the founder of WeWork.

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UNIDENTIFIED PERSON: How many cities are you in?

ADAM NEUMANN: Seventy-five cities, 25 countries, 45 different languages, 250,000 members and counting.

GOLDSTEIN: WeWork declined our interview request. This is Adam Neumann speaking at a mayor's conference last year. He's pitching WeWork as something much more than just an office rental company.

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NEUMANN: We won't just bring you jobs. We'll bring a place to live, we'll bring education, and - this is important - we'll bring corporate America.

GOLDSTEIN: In less than two years, the Vision Fund and SoftBank put more than $10 billion into WeWork, and the bigger WeWork got, the more money it lost. And then early this year, the Vision Fund stopped pouring more money into WeWork. WeWork tried to go public, but investors weren't interested. Now the company is laying off workers and looking for new sources of cash. The Vision Fund is likely to lose money on its investment in WeWork. It's not clear how the fund will do overall, but the people behind the fund aren't waiting to find out. They want to raise money to launch a new fund that will be even bigger than the Vision Fund.

Jacob Goldstein, NPR News. Transcript provided by NPR, Copyright NPR.