In the end, SoftBank
invested $1.2 billion, helping to transform SenseTime into the world’s most valuable AI startup. The young company’s valuation hit $7.5 billion this year.
That investment model is now under fire after Son, 62, boosted the equity in office-sharing startup WeWork
only to see it plummet as investors balked at enormous losses and troublesome governance.
Today’s accounting rules may be ill-suited to an era of unprecedented speculation on unicorns. Under the International Financial Reporting Standards (IFRS) that SoftBank uses, companies
have wide latitude to determine how much they think portfolio companies
are worth — and therefore how much profit they report to investors. It’s unclear whether any company has tried to determine paper profits for tech start-ups on the scale SoftBank is now using.
“I don’t believe we’ve ever seen an attempt to record this magnitude of income with respect to unquoted equity investments,’’ said Robert Willens, a tax expert in New York.
Son’s bookkeeping has allowed him to claim his average internal rate of return far outpaces those of other investors. This month, as SoftBank took a hit from WeWork, Son defended his investment approach. “There are 5,000 venture capitals globally and average IRR is 13 per cent,’’ he said. “Our return is about twice as big as this.’’