20 years before WeWork, SoftBank raised a massive fund and plowed money into 14 startups. 7 collapsed in the aftermath of the dotcom meltdown and the fund returned pennies on the dollar.

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FILE PHOTO: Japan's SoftBank Group Corp Chief Executive Masayoshi Son attends a news conference in Tokyo, Japan, November 5, 2018.  REUTERS/Kim Kyung-Hoon/File Photo

  • SoftBank Vision Fund’s recent investments have attracted a great deal of scrutiny in the aftermath of WeWork’s failed IPO, especially after SoftBank Group reported a $6.5 billion loss in the third quarter.
  • SoftBank had raised $1.5 billion for SoftBank Capital Partners in 1999, which likely made it the largest late-stage venture fund at the time, according to SoftBank documents. 
  • SoftBank Capital Partners invested in companies across the web landscape back in the late 1990s and 2000, but when the dotcom market subsequently crashed, the fund and other SoftBank investments came close to being wiped out. 
  • “Serious doubts” were beginning about SoftBank’s “increasingly chaotic” Internet empire, the Economist wrote back in March 2000
  • Here’s a look at companies that SoftBank Capital Partners plowed its money into and how they ended up. 
  • Visit Business Insider’s homepage for more stories.

SoftBank has made news in recent months as a series of investments, from WeWork to Uber to Wag.com, have soured, raising questions about its strategy to plow massive amounts of money into startups and anoint them the winners of their industry. 

The approach is the hallmark of the company’s Vision Fund, a $100 billion investment vehicle raised in 2017 from backers including Saudi Arabia, Abu Dhabi, SoftBank corporate, and other firms. 

But what many people may forget — or not even know —  is that SoftBank pursued a similar venture strategy 20 years ago with disastrous results.

In what could have been called the Vision Fund of its day, SoftBank raised $1.2 billion for SoftBank Capital Partners in July 1999 to make late-stage investments in promising tech companies.

Controlled by SoftBank, the fund raised money from limited partners including the state of Michigan and French media company Vivendi. SoftBank pledged $720 million of the total and founder Masayoshi Son was one of just a few partners.

Son would reserve a hotel suite in California – preferring the Fairmont San Jose or the Ritz-Carlton San Francisco, or sometimes the Mandarin Oriental – and host a series of meetings with startup founders that the fund, or other SoftBank units, were thinking of backing, according to a former SoftBank employee.  

The investment vehicle may have been the largest late-stage fund in history, eventually swelling to $1.5 billion, according to a 53-page factbook that SoftBank published in 2001.

Benchmark Capital, which invested in WeWork alongside the Vision Fund, raised a $1 billion fund around the same time, according to the Wall Street Journal.

As SoftBank Capital Partners ran around Silicon Valley writing checks of $50 million to $150 million, it received many of the same criticisms the Vision Fund has gotten recently. The fund took stakes seemingly unconcerned about valuation or the disruption it brought to the Silicon Valley order, according to news reports at the time.

The plan then, as it has been with the Vision Fund, was to raise similarly-sized funds every year or two. SoftBank Technology Ventures VI launched the following year with a similar amount of money, but that was one of a series of funds focused on early-stage investments. SoftBank is already raising funds for a second Vision Fund, though the troubles of the first may make that more difficult. 

SoftBank Capital Partners returned pennies on the dollar to its limited partners if you track the investments. SoftBank’s 2001 factbook stated that some of the “broad range of late-stage start-ups” in which it had invested “are not performing well because of the current market conditions.”

It was a tough time across the industry. The Nasdaq, where many of the early tech firms listed shares, fell nearly 80% from March 2000 to October 2002. Venture capitalists industrywide lost a net 17.6% in 2001 and 33.7% in 2002, according to Cambridge Associates. 

Here is a list of 14 of the investments made by SoftBank Capital Partners, seven of which ultimately collapsed. To be sure, some names like 1-800-Flowers emerged on the other side of the crash. 

A SoftBank spokesman declined to comment. 

Investor darling Webvan burned through $800 million in cash and went bankrupt

Online grocer Webvan was one of the most generously financed startups of the dotcom era, raising a whopping $441 million from investors as it promised to shake up a $450 billion grocery market. SoftBank Capital Partners was one of its many investors. 

But its fall was one of the most spectacular failures of the dotcom era.

The company planned to sell $345 million of its stock in a planned IPO right at the time when dotcom stocks were beginning to slide. After an initial delay, the company made its debut on the stock market in November 1999, the New York Times reported.  At the time, the company expected to post more than $65 million in losses for that year. 

In fact, Webvan had burned through more than $830 million in cash thanks to high overhead costs. The company’s sales revenue was tiny compared to the amount spent on building high-tech warehouses, hiring an army of employees and assembling a fleet of trucks.

By July 2001, the company had shut down the website, fired 2,000 employees and filed for bankruptcy, the Wall Street Journal reported.

 

 

 

 

 

Kozmo.com’s last-ditch effort to merge with another company fell through, forcing the company to lay off 1100 employees and shut down

Run by a charismatic 26-year entrepreneur in the East Village, the online delivery company Kozmo.com was supposed to be New York’s first big dot-com company. 

The company had expanded to nine cities and quickly swelled to the size of 3,300 employees, attracting up to $280 million in investments from heavyweights like Amazon and SoftBank Capital Partners, the New York Times reported.  

And the company had big plans: it registered for an IPO in March 2000, and planned to expand to 30 cities across the country. 

Then the dot-com bubble burst and Nasdaq tech stocks began to plummet, drying up the public market. Kozmo scrambled to boost its profit margins, as investors began to back away from the company.

When a last-ditch effort to merge with a LA-based company fell through in April 2001, the company pulled the plug on its efforts. It shuttered its operations and laid off its remaining 1,100 employees, Bloomberg reported

Buzzy trading platform OptiMark Technologies went bust

Buzzy stock-trading system OptiMark Technologies had drummed up investor expectations because of a black-box algorithm that allowed traders to specify how much they were willing to pay for a certain quantity of stock, and then anonymously find a match. 

It was supposed to revolutionize stock trading and render the New York Stock Exchange obsolete. The company had partnered with Nasdaq and the Pacific Exchange, and had partners like Dow Jones, the Los Angeles Times reported.

SoftBank Capital Partners had invested $100 million in OptiMark. 

But traders found the system tedious to use, and less effective than stock markets. Meanwhile, high overhead costs were causing the company to burn through $6 million in cash per month, making its operations unsustainable. 

The company eventually went bust in September 2000, suspending trading operations and eliminating 110 jobs, The Wall Street Journal reported.

 

 

‘Pay to surf’ platform AllAdvantage.com sold Internet users the dream… and then ran out of cash

“Get paid to surf” company AllAdvantage.com miscalculated how popular its business model would be with Internet users, a mistake that would prove fatal. 

The website paid users an hourly fee to attract other users to its webpage, where an advertising toolbar, dubbed the Viewbar, would track and gather browsing habits as they surfed.

SoftBank Capital Partners invested $70 million in AllAdvantage.com, betting that advertisers would go crazy for the user data the company would be able to gather. 

AllAdvantage.com quickly attracted close to 6 million users, forcing its costs up to a higher-than-expected level, and prompting analysts to question whether they were able to deliver advertisers enough data to break even.

It was not, Fortune magazine reported in 2000. In fact, the company burned through most of its $135 million investment, losing $66 million in just the first quarter. 

The company saw its planned IPO fall through in 2000. It closed down by February 2001. 

 

 

Odimo.com struggled through the crash but couldn’t survive for long. It sold its domain name Diamond.com for $7.5 million, and later went bust.

SoftBank Capital Partners invested $31 million to online luxury retailer Odimo Inc. back in February 2000,  a company press release noted

Odimo had three different lines of luxury goods sold through different websites:  www.ashford.com, www.worldofwatches.com, and the highly sought-after domain name www.diamond.com, which Odimo sold for $7.5 million in 2006. 

The company survived for longer than many of its dot-com peers. But its significant losses eventually caught up with it, and a 2005 IPO filing warned that it might not be able to generate sufficient cash.

By April 2007, Odimo had sold its three websites, and laid off all its workers. 

“Other than Amerisa Kornblum, our President and Chief Executive Officer, who, commencing in 2008, serves the Company for no compensation, we have no full time employees,” a 2007 annual report to the SEC said.

Other companies made unlikely comebacks, like the embattled Buy.com.

Loss-making Buy.com would have been the classic example of a dotcom company crash, but for the actions of a tenacious founder. 

The company was one of the Internet’s largest merchants, selling everything from computers to books, videos and games. 

But Buy.com made its debut on the stock market in early 2000, just as other dotcom stocks were tanking. And its negative gross margins would quickly prove troublesome for the company, beginning with a rocky first week as a publicly traded company, the Wall Street Journal reported

The company was running losses of up to $133 million that year, as it tried to ramp up its users. It also expanded into the UK, beginning a price war with existing retailers, the Wall Street Journal reported. 

Founder Scott Blum, who had been ousted as CEO just months before the company went public thanks to a spotty track record with the SEC, watched his shares plummet in value. Then he made his move in 2001. Blum bought the company back and took it private, Forbes reported.  

The company was ultimately acquired by Japanese e-commerce giant Rakuten for $50 million, TechCrunch reported in 2010. 

 

Rivals.com also died and came back to life in the blink of an eye.

Seattle-based online sports network Rivals.com died and was brought back to life, all in the blink of an eye. 

Its prospects seemed bright back in 2000. The company had acquired regional sports network Alliance Sports, and received a $35 million investment from SoftBank Capital Partners, CNET reported. At its peak, the company operated a network of 700 websites, and seemed set to file for an IPO worth $100 million.

But the dotcom crash hit the company hard, and it ceased operations in 2001. That’s when a former executive from the acquired regional network Alliance Sports stepped in, and bought back the company’s assets, the Seattle Post-Intelligencer reported.

The company relaunched the website, under different leadership, eventually became profitable, and was acquired by Yahoo in 2010 for an estimated $100 million, CNBC reported

Other companies survived by reinventing themselves. SmartAge.com changed its identity, replacing its name, management and business model.

SmartAge.com was a portal that helped small businesses create and promote their sites, and it attracted $39 million in investment from SoftBank Capital Partners.

The company had planned to go public with a $90 million IPO in 2000, according to a MarketWatch report. But market conditions would prove tough for the company, and it shelved its IPO plans and went through a major round of layoffs, Fortune magazine reported.

The company changed its name to B2SB Technologies in 2001, switched out its management team and transformed its business model in early 2001, SF Gate reported. Part of that transformation involved abandoning its destination site and pushing a new product through partners like ZDNet, the Fortune article said. 

 

 

 

 

Still others managed to push through the hard times. 1-800-Flowers.com worked its way up to become a leading gift retailer

1-800 Flowers was older, and had more humble origins than its dotcom peers. The online flower-delivery company was one of the early pioneers of on-call commerce. But owner Jim Cann could not afford a night-shift employee, so he forwarded all night orders to his home phone, he recounted in a post published by the New York Times. 

The dotcom crash wasn’t the first financial crisis that the company faced. Back in 1986, McCann said he bought a Texas-based floral company without realizing that it had a debt of $7 million. The company came close to bankruptcy, but it survived through advertisements on CNN and AT&T TV commercials. 

The company made its debut on the public market just as dotcom stocks were beginning to flop in 1999. And a rocky first day on the market caused several employees to express dismay, the Wall Street Journal reported

The company managed to survive its IPO and continued to build its business. It eventually tied up with big brand businesses like Martha Stewart Living, and acquired a number of other gift retail companies since then. 

 

Amazon’s favorite online recruiting site stayed open, eventually getting acquired.

Massachusetts-based Webhire was an online recruiting site that had piqued the interest of investors ranging from Amazon to SoftBank. 

SoftBank Capital Partners spent $31 million to acquire a 40% stake in the company back in 1999, a Dow Jones wire said. Then it syndicated some of that investment to Yahoo, renamed part of the site to Yahoo resume, and transformed it into a talent databank for a host of SoftBank-based companies, the Wall Street Journal reported

SoftBank continued to buy Webhire shares from Amazon well into 2002.

Webhire was eventually acquired by recruiting software platform Kenexa in 2006. The transaction cost Kenexa $34 million, a press release said. Kenexa was later acquired by technology giant IBM. 

The savvy founders behind Legal Research Network (LRN) also kept their company thriving

Corporate compliance platform LRN (Legal Research Network) promised to revolutionize legal research, prompting SoftBank Capital Partners to invest $30 million in the company in early 2000, the Los Angeles Times reported.  

The company aimed to scale the extent to which it could offer legal services through the internet, building learning products and software to educate employees on antitrust, discrimination, securities, trade secrets and other legal areas, the Washington Post reported

The company was one of SoftBank’s more successful bets. The company recently celebrated its 25th anniversary, and works with over 400 organizations in countries around the world, the LRN website said. 

 

National Leisure Group (NLG) worked its way up the market, eventually getting acquired in 2007

The National Leisure Group wasn’t a traditional dotcom company. It sold cruise and vacation packages through partner websites like Orbitz, Expedia, Yahoo! and Priceline. It also turned out to be one of SoftBank’s more durable bets. 

SoftBank Capital Partners and General Catalyst, a Boston-based private equity firm, took control of the National Leisure Group in the midst of the dotcom crash, in May 2000, a company’s press release said.

The company would continue to do well, earning close to $1 billion in sales, according to the Boston Business Journal. 

It was eventually acquired by World Travel Holdings in 2007, a press release said. 

 

 

GSI Commerce sold to eBay at a 51% premium above market price. Its founder later managed to secure $1 billion in funding from SoftBank’s newest act, Vision Fund.

SoftBank Capital Partners made a major bet on Michael Rubin’s Global Sports company, pouring in $80 million back in 1999, according to MarketWatch. As part of the deal, the company divested its non-cyber assets, leaving it a prime target for the upcoming dotcom bust. 

And the newly minted GSI Commerce’s initial performance during the downturn wasn’t pretty: the company lost a total of $155 million, a feature from Forbes said. But the company pushed sales from $5.5 million to $355 million, allowing it to break even.

GSI Commerce proceeded to do extremely well, and eventually sold to eBay for $2.4 billion. At  $29.25 per share, the company sold 51% above market premium, TechCrunch reported.

SoftBank Capital Partners had already sold its stake in the company back in August 2009, according to a company proxy statement, and did not fully benefit from the windfall.  

Meanwhile, founder Michael Rubin formed a new company, absorbing GSI lines of business like Fanatics and Shoprunner. SoftBank would later invest $1 billion in Fanatics via a newer venture arm, the $100 billion Vision Fund, which Rubin credited to GSI Commerce’s earlier success. 

 

And CyberArk Software kept its head down, only going public in 2014.

SoftBank Capital Partners helped security company Cyber-Ark Software raise around $6 million in funding back in July 2000, CNET reported. 

The company continues to thrive today. Its technology still helps companies protect their data, infrastructure and assets across the enterprise, in the cloud and throughout the DevOps pipeline, a description on the company website said.

The company made its debut on the stock market in 2014, a press release said. 

And companies have turned to storing their data online, CyberArk’s offerings have only grown more valuable over time. The company website said it works with more than 5,000 global businesses, more than 50% of which are Fortune 500 companies.