When U.S.-based venture capital firms began expanding overseas in earnest two years ago, it seemed like a good idea. Buoyed by sky-high self-confidence and a belief in their own infallibility, VCs abandoned the long-held notion that they should stick to what they knew, and set out to conquer foreign markets.
Now, with economies in turmoil and money sources drying up, many are returning home with their tails between their legs. The latest casualty is Softbank, which 10 days ago said it was handing back as much as $250 million to investors in its Epean fund and shutting down offices in Munich and Paris.
The news is significant because of all venture capital firms, Softbank’s global ambitions were perhaps the most insatiable. Last year alone, Softbank christened new funds in Korea, China, India, and Latin America, among other far-flung locales. In an interview last year, Softbank’s executive managing director Gary Rieschel said the firm planned to increase its non-U.S. investments from $500 million in 1999 to roughly $3.5 billion in 2000.
Today, that vision is in shambles. Trouble first became evident in May, when Softbank announced it would pull out of India and no longer feed fresh capital to its $190 million eVentures India fund. The fund, a joint venture between Softbank and News Corp., will continue to support existing portfolio companies but will not be making any new investments. This summer, Softbank also announced it was consolidating its two European funds, Softbank UK and Softbank Europe, into a single $600 million fund.
But now, Softbank is going one dramatic step further in Europe by literally giving back up to $250 million of that money to investors and shutting down offices. Softbank spokeswoman Alyson Nolan acknowledged that corporate investors in the fund have started asking for their money back. She said these investors needed the capital for their own businesses and didn’t want to be held to their Softbank commitments.
But Nolan added that the Softbank Europe fund would continue to operate. “We are still committed to the region and are just trying to work within the current market conditions,” she said. To date, the fund has invested about $135 million in 16 start-ups.