The Story behind SoftBank’s investments

• The company posted an overall operating loss of 1.36 trillion yen in the 12 months ended March and a net loss of 961.6 billion yen, according to a statement released on Monday.
• The $75 billion the Vision Fund has spent to invest in 88 companies as of March 31 is now worth $69.6 billion.

SoftBank Group Corp a Japanese multinational conglomerate holding company recently reported that its Vision Fund business, a fund which is touted as the world's largest technology-focused venture capital fund lost 1.9 trillion yen ($17.7 billion) last fiscal year after writing down the value of investments, including WeWork and Uber Technologies Inc.

The company posted an overall operating loss of 1.36 trillion yen in the 12 months ended March and a net loss of 961.6 billion yen, according to a statement released on Monday. The losses are the worst ever in the company’s 39-year history. The drop in Uber’s share price was responsible for about $5.2 billion of Vision Fund’s losses in the period, while WeWork contributed $4.6 billion to the losses while the remaining $7.5 billion came from the rest of the portfolio, reported Bloomberg .

The $75 billion the Vision Fund has spent to invest in 88 companies as of March 31 is now worth $69.6 billion.

Recently there have been reports and accusations against Softbank that their investments –such as  Uber, Doordash, WeWork, etc are deceptive and some even accuse them to an extent that they’re acting as a cover by providing a safe passage for laundering the money of Saudi investors by getting them invested in businesses that have been losing a huge sum of money.

The company has also been accused of damaging real businesses and also defrauding their own workforce alongside with the fact that the wages they’ve been paying are low.

One such example of Softbank’s investments being deceptive and damaging to real businesses is that of DoorDash. DoorDash Inc, a San Francisco-based on-demand prepared food delivery service founded in 2013 that uses logistics services to offer food delivery from restaurants on-demand.

It is said that Doordash raised huge sums of money from the likes of Softbank (a front for Saudi oil money). They’ve been accused of paying sub-starvation wages to riders while extracting massive commissions from restaurants (often disguised as "advertising fees”) that they lose money on the transaction.

Like Uber, WeWork, and other Softbank-backed organizations, even Doordash isn’t profitable and it said that it’ll never be.

Like Uber, WeWork, and other Softbank-backed organizations, even Doordash isn’t profitable and it said that it’ll never be. The purpose of DoorDash and other Softbank backed companies is said to be to attain "scale" whereupon they can be sold off to people in an IPO.

These companies appear to be durable if the investors are successful in keeping them alive despite them bleeding a huge amount of money. It is alleged that it’s a con, and it demolishes the real businesses it relies on such as in the case of DoorDash where it damaged the Pizza company.

It also defrauds the workers who do the work, and also the investors who are duped by the company owners.

According to a story posted by Ranjan Roy which tells a lot about DoorDash, the story is that a chain of pizza restaurants who did not offer a delivery service started getting customers calling in with complaints about their deliveries. It was discovered that the pizzeria which didn’t offer delivery, DoorDash, one of the big online food-delivery companies, delivered their pizzas.

The delivery option showed up on DoorDash’s website, where the customer would put in a delivery order on DoorDash, DoorDash would call in a pickup order, a DoorDash driver picks up the food and delivers it to the customer. This is done without the restaurant’s permission or involvement, which means it's also done without the restaurant paying DoorDash a fee. (This seems to be a “demand test” in which DoorDash experiments with doing delivery for a restaurant for free so that it can later pitch the restaurant on signing up with DoorDash and paying fees.)

DoorDash will sometimes charge you less for the pizza than it pays the restaurant for that pizza, due to the concept of “MoviePass economy” startup strategy of intentionally losing money to create user growth.

Specifically if one orders a $24 specialty pizza through DoorDash, it will only charge the, $16. If the customer likes to eat specialty pizza this would be a good deal for them, but it is not arbitrage.

But if you own the pizzeria:

If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then they should clearly just order pizzas himself via Doordash, all day long. They'd net a clean $8 profit per pizza and this is definitely an example of arbitrage.

The pizza arbitrage described above is basically a breakeven trade because the pizzeria has to actually make the pizzas, which costs money, but if this arbitrage works, the obvious next step is to not make the pizzas: The owner hands the DoorDash driver some empty boxes, he brings them to the owner’s friend’s house who doesn’t complain (because this is a purely financial transaction), the entire spread can be captured and can be done at a scale which was actually done and it resulted in riskless profits.

Arbitrage is about taking advantage of market inefficiencies but when companies like Doordash , who have been built on the basis of wrong models get subsidised into market dominance instead of correcting their course by testing, failing, and evolving, it clearly means that there’s something wrong and unfair which needs to be rectified. The only possible way of correcting the wrong practices is by holding them accountable because they’ve been accused of damaging real businesses and livelihoods.