SoftBank’s Masayoshi Son has a warning for tech bulls

Son is preparing to slash costs (particularly employee numbers) and sell investments as he repairs the damage. A $US10 billion chunk of the group’s valuable stake in Alibaba has been sold already and another $US6 billion is likely to follow, while other businesses, such as fund manager Fortress, are also on the block.

But despite his unwavering belief in revolutionary technology and particularly artificial intelligence, Son isn’t buying into the new wave of tech optimism sweeping across markets. It deployed just $US600 million in the June quarter, down from a staggering $US20.6 billion in the June quarter of 2021.

“I understand the desire to get impatient while prices are cheap, but if we do that we might suffer a serious wound that we can’t recover from,” Son warned.

Again, investors will rightly take Son’s insights with a tonne of salt. But the idea that there could still be some big, ugly surprises in the tech sector, and particularly among private companies, is worth thinking about.

The Financial Times reported this week that investors were selling their stakes in private equity and venture capital funds at a record rate this year. Data from investment bank Jefferies suggests investors sold stakes valued at $US33 billion in private funds in the first six months of the year, up from $US19 billion during the same period last year.

But such is the scale of the sell-off and change in company valuations, many of these investors – which include pension funds and sovereign wealth funds – are selling their stakes below face value.

Partly these sales are about portfolio rebalancing; the falls on public markets means big investors now have a bigger allocation to private markets than they want to. But there is also a recognition that Klarna-like revaluations could become more frequent.

The shake-out in private markets may be closer to the start than the end. As this column has covered extensively, Australia’s venture capital firms which invested in tech giant Canva have finally started to reduce their valuations for the design platform, but this came months after so-called crossover funds (which invest in public and private companies) cut their assessment of Canva’s worth.

Start-ups that need to raise capital for any reason – funding growth or giving employees and other investors a way to monetise their stakes – are likely to do so at lower valuations.

Time will also tell if the sharemarkets’ burst of tech optimism lasts. While bulls will argue many tech stocks became too cheap to ignore in June, conditions for profitless or marginally profitable tech firms may get worse before they get better, as rates rise further in the US and Australia.

Masayoshi Son hasn’t been right about much in the last few years, but he makes a good point when he suggests this is no time for serious wounds.

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