As recently as six months ago, raising money from SoftBank was the ultimate dream for most founders of late-stage startups, both in India and overseas. Those that had already managed even placed raising money from SoftBank on a higher pedestal than the ultimate Holy Grail for any founder—an initial public offering, or IPO.

“An MPO is our IPO,” Vijay Shekhar Sharma, founder and CEO of India’s payments unicorn Paytm*, said in an interview to the Nikkei Asian Review. “It’s important for us to remain private for at least two to three more years.”

An “MPO” was a Masa Public Offering, a play on the largesse bestowed by SoftBank chairman and CEO Masayoshi Son on the investors and founders of any company that caught his fund’s fancy.

For Sequoia and Lightspeed, the two biggest investors in SoftBank-funded hospitality unicorn OYO, the MPO became an RPO. Ritesh Agarwal, the 25-year old founder and CEO of OYO, bought back a large chunk of his own company’s shares from his investors through a $2 billion buyback. (We wrote about it.)

For MPOs and RPOs to work for most of SoftBank’s portfolio companies, though, it needed a few of its most highly valued ones to, well, IPO.

But the abject defeat of SoftBank’s most ambitious IPO yet, WeWork, has turned the giant SoftBank machine from one that was spewing cash to one that is now sputtering for it.

From what was supposed to be a $65 billion IPO, WeWork’s expected valuation kept plummeting till the final cut-rate valuation that was apparently considered by WeWork was as low as $10 billion. For a company that has raised nearly $12 billion in funding. If it went public at that valuation, SoftBank would need to write down close to $9 billion of the value of its WeWork stake. Thankfully, it didn’t, saving SoftBank that ignominy. But even without that, SoftBank’s stock is down 15% over the last 12 months.

“SoftBank could be ground zero for the recession. If all of a sudden all of the stuff starts unwinding, and all these unicorns start crashing, and all these private companies can’t get out, there’s layoffs in the part of the economy that we thought was going to drive all the innovation, [then] this could be SoftBank, and this story could end up being much bigger than we think,” said author and marketing professor Scott Galloway on 13 September on Pivot, his podcast with journalist Kara Swisher.

SoftBank’s sheer power and vulnerability make it like a tectonic fault line lying beneath the surface of many large late-stage companies in India. Like with the famous San Andreas Fault in California, the SoftBank Fault has built up enough stress levels for an earthquake to occur.

AUTHOR

Rohin Dharmakumar

Rohin is co-founder and CEO at The Ken. He holds an MBA from the Indian Institute of Management, Calcutta and an engineering degree in Computer Sciences from the R.V.C.E., Bangalore.

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