SoftBank’s LatAm fund co-head commits to further investments despite losses

The co-head of SoftBank’s Latin American fund said he had “zero concern” about securing extra capital from its Japanese parent, despite nearly $1bn of investment losses and the departure of the man considered its architect.

Alex Szapiro, managing partner and head of Brazil for the Latin America fund, told the Financial Times he believed the technology conglomerate remained committed to the region, with close to $8bn already invested and “hopefully more” soon.

SoftBank launched a $5bn vehicle dedicated to the emerging market region in 2019 and later followed with another of $3bn, in an initiative driven by former high-ranking executive Marcelo Claure.

But the Bolivia-born billionaire’s exit from SoftBank more than a year ago, after falling out with company founder Masayoshi Son, has led to questions over the future direction of his brainchild, compounded by a paper loss of about $900mn on the Latin American investments.

“SoftBank was the first one to really invest heavily in late-stage [start-ups here],” said Szapiro, who oversees the operation jointly with a colleague in Mexico. “There is zero concern from our end that there is no capital available.”

The comments come at a critical time for the world’s biggest tech investor, as it shifts to taking a defensive position and slowing down investments to cut losses.

The group’s flagship Vision Funds, two far larger pools of capital for innovative technology globally, have slashed dealmaking after substantial writedowns on their holdings.

The pullback follows falling company valuations in the sector, as rising interest rates reduce the amount of money available for start-ups. Son is now banking on a successful listing of UK chip designer Arm later this year to help the Japanese group mount a turnround.

Conceived as a standalone entity apart from the rest of SoftBank, the Latin American offshoot’s portfolio contains more than 80 companies. It quickly spent big to back many of the area’s most richly valued private enterprises, including Mexican used-car marketplace Kavak, Colombian delivery app Rappi and Brazilian property platform QuintoAndar.

“The pace and amount of investment was extremely aggressive,” said one venture capital investor who asked not to be named.

The past year has been turbulent, with a pair of Claure’s top lieutenants leaving shortly after his departure and an organisational overhaul.

Back-office functions were folded into a division of SoftBank, while early-stage investments were spun out to VC firm Upload Ventures. A spokesperson said the Latin American funds remained independent of the wider group, with their own separate investment committee.

But Szapiro said he now had access to an unspecified amount of cash from the Vision Funds, alongside about $400mn still to be deployed from the smaller of the two Latin American vehicles. A spokesperson for the funds said there were “no immediate plans” for a third fund. SoftBank declined to comment.

While acknowledging a slowdown in its investing activity, Szapiro insisted this was less related to Claure’s resignation, instead reflecting a general trend plus a dearth of start-ups “of the right maturity”.

After VC funding in the region hit an annual record of $15.9bn in 2021 at the peak of the boom, the amount dropped by half last year, according to the Association for Private Capital Investment in Latin America.

SoftBank declined to provide a complete list of its transactions in the region. Since Claure’s exit in January 2022 there have been 16 investments with a total value of about $400mn, according to a person familiar with the matter. The team last month led a $48mn combined funding round and merger for human resources outfit Rankmi of Chile.

“I think Marcelo had a much bolder vision of transforming Latin America,” said a person familiar with SoftBank and the businessman.

Certain bets, however, appear badly timed. In December 2021, the fund joined in the initial public offering of Brazilian digital lender Nubank, whose stock is now down by more than half since listing in New York.

The $7.3bn deployed by the two Latin American entities was ascribed a fair value of $6.4bn in SoftBank’s latest quarterly financial statements.

Szapiro said he was not concerned about the notional portfolio decline, explaining that management took a “very conservative” approach to marking its assets, based on most recent funding rounds, public market comparables and sector weightings.

“If you compare to where the tech sector has basically gone down — at 50, 60 per cent — you could even say that LatAm is in a better shape,” he added.

This month’s collapse of Silicon Valley Bank, which catered to many start-ups and founders, has sparked warnings that credit lines for such businesses could dry up.

About 80 per cent of companies in SoftBank’s Latin American stable have sufficient cash for the next 12 months or more, said Szapiro. With most of the required cost cuts already undertaken, he estimated that 30 to 40 per cent would break even in the coming two years.

Investments will be split roughly 50/50 between new and current companies in the roster, aiding the latter to expand or pursue acquisitions, with a focus on portfolio management, he added.

With a time horizon of up to 2032 for the fund, Szapiro stressed there was no rush for exits, which could happen in three to five years. There are no outside investors, only SoftBank and Son, who took a company loan for his portion.

“If he [Son] sells the portfolio, he crystallises a loss,” said a person familiar with the internal workings of the conglomerate.

Another VC executive said they did not expect any withdrawal or a fire sale, given SoftBank’s competitive advantage in Latin America.

“It’s probably the region where they are best positioned,” the executive said. “They are the biggest fish in the bowl, whereas if you look elsewhere they have more competing on par with them.”