Jonathan Larsen, chief innovation officer of Ping An Insurance Group.
Ore Huiying | Bloomberg | Getty Images
Venture capitalists and private equity players will likely have to re-evaluate their investment priorities after some of SoftBank‘s promising bets went south, an investor said Thursday.
The Japanese conglomerate reported its first quarterly loss in 14 years on Wednesday, and some of it was owing to the dramatic fall of office space-leasing start-up WeWork in recent months. SoftBank recorded a $3.4 billion writedown on its WeWork investment two weeks after injecting fresh funds of $5 billion and taking 80% control of the company.
While it’s difficult to speculate the long-term sustainability of WeWork’s business model, it is “not unusual in innovation cycles for expectations to get ahead of reality,” said Jonathan Larsen, chairman and CEO at Ping An Global Voyager Fund.
“We see that time and again, and I think this is probably an example of that,” he told CNBC’s “Squawk Box.”
The $1 billion Global Voyager Fund — part of major Chinese finance conglomerate Ping An — invests in early-stage financial technology and digital health start-ups. Typical investments range between $15 million and $30 million — a fraction of the $10.65 billion SoftBank invested into WeWork at a $47 billion valuation.
Pushing companies to profitability too early isn’t the answer, but having a coherent story and a coherent path to profitability is the answer.
Jonathan Larsen
chairman and CEO at Ping An Global Voyager Fund
“From our perspective, rationality and reasonableness of expectation is actually positive,” Larsen said. He added that a slight reset in how investors scope out investments would probably be helpful to those trying to put their money in real, transformative technologies. “I suspect that we’ll see some re-evaluation across the venture spectrum as well as private equity.”
Of the 11 investments the Global Voyager Fund has made so far, the largest was a 41.5 million euro ($45.90 million) check for German start-up Finleap, which builds fintech companies.
Asked about expectations Ping An has of its portfolio companies, Larsen said that they don’t have to show profitability in the short term. Instead, those start-ups should have a sustainable path toward long-term profitability.
“It’s typically a 7 to 10-year process to be able to get a business up and running, to be profitable and then meaningfully profitable on a sustainable basis,” he said.
“Pushing companies to profitability too early isn’t the answer, but having a coherent story and a coherent path to profitability is the answer,” Larsen added. In Ping An’s case, the fund looks at both the financial case presented by prospective investments as well as the strategic case — in terms of how well the technology and business scopes align with Ping An’s own research and developments.
“Our job at the Voyager Fund is to find technologies, business models, platforms and approaches, which are complementary and are additive to what we can do internally,” he said. “Alongside that, of course, we’re looking for a strong financial case so that we can deploy our capital responsibly.”
Larsen explained that if the right opportunity presents itself, the Global Voyager Fund may shell out amounts north of $100 million, but the scrutiny into the company would be a lot more stringent.
“It would need to be a larger company, it would need to be later stage, it would need to look more like a private equity opportunity than a traditional venture opportunity.”
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