Investments

SoftBank’s Hard Lessons From The Animal Kingdom

Valuation venture capital funding

There are so many canine metaphors to use here.

It was the investment that went to the dogs. It’s been rough sledding for Wag. This one took a bite out of results … and so on.

You get the picture.

But the real lessons for SoftBank’s Vision Fund may lie with this:  The firms that promise to be the “Uber” of [name your vertical] may be borrowing a page from the platform model – but executing on that promise is, well, a tricky thing.

As reported by The Wall Street Journal Tuesday (Dec. 10), the Vision Fund has reached an agreement to sell its roughly 50 percent stake in Wag Labs, the dog-walking startup.

The news comes from unidentified people “familiar with the matter.” It states that the sale represents “another disappointment” for the Vision Fund.

Wag has been amid a reorganization (read: layoffs) while it seeks firmer operational footing. And SoftBank, through the fund, is getting paid, the Journal reports, at a price that is “well below” the $650 million valuation that had been in place when Vision Fund invested $300 million early last year. This, of course, implies a loss and will be likely to weigh at least a bit on results in the fourth quarter, after losing $6.5 billion in the third quarter. That loss, of course, came from losses in companies like Uber and WeWork and Slack. Those are just marquee names, amid busted initial public offerings (IPOs) and IPOs that never were – and Vision Fund has 83 holdings in its roster.

The Wag troubles may bring writedowns for the Vision Fund that pale in comparison with WeWork. But beyond the dollars, there’s an investment strategy that likely needs tweaking. The on-demand, gig economy, platform model should come with a disclaimer all too familiar to investors everywhere: Past performance does not guarantee future returns. The Uberization of well, everything, has its winners and losers, and merely matching supply and demand is not enough.

Wag has a button, a gateway to an on-demand service. But as a CNN report noted in September, challenges abounded and abound. Wag has faced problems with background checks and vetting its workers, some of whom have been accused of stealing from pet owners’ homes, losing animals on walks, even returning them deceased.

The scale problem, CNN reported, has led to runaway dogs, too — a problem unique to a business model that depends on the whims and enthusiasm of four-footed creatures.  In the meantime, there have been rumors that Wag has been shopping for a buyer — among them, Petco, and according to Recode also had approached a competitor, Rover, about making a deal.  Sales, as estimated by Second Measure and cited by CNN, were down by 12 percent in the second quarter of 2019, year on year, implying the headlines have taken a toll after sales were up 8 percent in the first quarter of the year (also measured against 2018’s levels).

It might be a small wonder that Uber stands out for the startup crowd. As noted by Karen Webster in this space, transportation has been a starting point to branch out into all sorts of ancillary services. The core platforms have enabled cross-selling beyond ride hailing and into logistics and Uber Eats. Use cases are, ideally, interconnected. It is the many-sided model that may find success more quickly than the single focus that marks the likes of Wag.

For the Vision Fund, the platform model has proven to be better examined with a fine-tooth comb than a broad brush.

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