SoftBank’s Cash Puts Workers In a Hole
For five years, Sunil Solankey had run the 20-room Four Sight Hotel in a New Delhi suburb. Business was steady, but he longed to make the establishment a destination for business travelers.
Last year, a hospitality start-up called Oyo told Mr. Solankey that it would turn the Four Sight into a flagship hotel for corporate customers. It guaranteed him monthly payments whether the rooms were booked or not.
At Oyo’s request, Mr. Solankey sank 600,000 rupees, or $8,400, into reupholstering the hotel’s furniture and adding new linens. But corporate guests did not materialize, and Oyo stopped making the payments. Now he is on the verge of eviction.
Mr. Solankey is one of millions of workers and small-business people who worked with start-ups financed by the biggest venture capital fund in history, the
$100 billion Vision
Fund run by the
Japanese conglomerate SoftBank.
The fund was part of a flood of money that has washed over the world in the past decade
— and that has upended people’s lives when the start-ups broke their promises.
Masayoshi Son, SoftBank’s chief executive, unveiled the Vision Fund in 2016. Mr. Son poured the money into fledgling companies across the world, many of which have a business model of hiring contractors who deliver their services. He urged these start-ups to grow as fast as possible.
Many of the young companies used SoftBank’s cash to dangle incentives and other payments to attract as many workers as they could. But when they failed to make a profit or meet growth targets, the companies slashed or reneged on those incentives.
The New York Times reviewed contracts and internal company documents, and interviewed more than 50 workers with SoftBank-funded start-ups like Oyo, the delivery firm Rappi and the real estate brokerage Compass in places such as Chicago, New Delhi, Beijing and
Bogotá, Colombia. What emerged was a pattern that repeated across the world.
“These start-ups try to get workers attracted to them and bring them within the fold,” said Uma Rani, a researcher at the International Labor Organization. “When the workers attach to the whole thing and are highly dependent on it, then you slash it.”
SoftBank’s Vision Fund is an emblem of a broader phenomenon known as “overcapitalization” — essentially, too much cash. Flush with the cash, entrepreneurs operated with scant oversight and little regard for profit.
SoftBank and other investors have valued these start-ups at inflated levels, leading to an overheated system. When the companies try to cash out, they run into hurdles.
At two of SoftBank’s biggest investments, WeWork and Uber, some of these issues have become public. Uber, the ride-hailing service, staged an underwhelming initial public offering in May and posted a $1.2 billion loss recently. WeWork, the office leasing company, recently ousted its chief executive and accepted a rescue plan from SoftBank as its value was cut. In early November, SoftBank reported a $4.6 billion hit from its WeWork investment.
SoftBank is far from the only firm to invest in start-ups that rely on contractors. But none have invested as widely in these companies as SoftBank.
The model of using contractors has created work opportunities. But among people who are most dependent on these companies, unrest is growing.
Protests against SoftBank-funded start-ups have erupted in New York, Bogotá, Mumbai and beyond. In China, three SoftBank-backed companies faced 32 strikes last year.
Jeff Housenbold, a managing partner at SoftBank’s Vision Fund, said, “This is an important, complex issue that predates the Vision Fund and affects many companies we haven’t backed in equal measure.”
‘The Global SoftBank’
In an investor call in 2015, Mr. Son said he was embarking on SoftBank’s second stage. He called it “the global SoftBank.”
Mr. Son, now 62, had built the company into a telecom conglomerate. He had also successfully invested in the Chinese e-commerce company Alibaba in the 1990s.
Now he wanted to diversify. In late 2014, SoftBank started by putting hundreds of millions of dollars into three ride-hailing companies that copied Uber: India’s Ola, GrabTaxi in Southeast Asia and China’s Kuaidi Dache, which later merged with its rival, Didi. Mr. Son made it clear the money was for growth.
Mr. Son was enamored with businesses that used contractors. “Uber, using internet, changed the business model,” he said in 2016. SoftBank invested in Uber two years later.
Over time, SoftBank and start-ups with contractors became mutually dependent. When the start-ups cut costs, they reduced payments.
Recently, when Mr. Son discussed SoftBank’s earnings, he said: “I learned a lot of lessons, but no change in our strategy. We don’t see any rough sea.”
‘It Is Suicidal for Me’
Under the arrangement with Mr. Solankey, Oyo guaranteed him monthly payments of 700,000 rupees, or around $10,000, for three years, according to a contract viewed by The Times. Mr. Solankey, now 63, agreed. But within a year, the payments evaporated. “It is suicidal for me,” he said.
Oyo was founded in 2013. It coaxes small hotels to become Oyo-branded destinations that list exclusively on its site, without its having to own most of the properties.
It has scaled up partly by promising hoteliers monthly payments, made possible by SoftBank’s money. The payments, which are an advance on the hotel owner’s share of room revenue, were supposed to be paid no matter how many rooms were booked. In exchange, the hotels agreed to book all rooms through Oyo and let it control how the rooms were sold on other sites.
But several hotel associations said Oyo had canceled or cut the payments. Some also said Oyo had deeply discounted room rates and increased its commissions and fees.
In June, more than 70 hoteliers in the coastal city of Kochi marched to Oyo’s local headquarters for a twoday strike. The unrest spread to Bangalore, New Delhi and other cities. In October, the Competition Commission of India opened an antitrust investigation into Oyo’s practices.
“The situation is so bad, we’re looking at it as a scam,” said Pradeep Shetty, the honorary joint secretary of the Federation of Hotel and Restaurant Associations of India, which filed the competition complaint.
Ritesh Agarwal, who founded Oyo when he was 19, said in an interview that only a few hotels had been unhappy or tried to leave. He said Oyo had occasionally reduced the guaranteed minimums, but only when hotels, like Mr. Solankey’s, had misrepresented their business.
“Asset owners continue to believe that Oyo is the best option in terms of the value proposition we can provide for them,” he said.
Not Mr. Solankey. He said he was losing 150,000 rupees, or $2,100, a month. While he plans to quit Oyo, he needs the money the company owes him. Oyo has offered to pay just half the debt — and then only if he signs a new contract with no guaranteed payments.
Taking Safety Risks
Farley Molina was delivering a pizza in Medellín, Colombia, in October when a motorcyclist grabbed his cellphone, his cash and the orange bag he uses to carry packages for the start-up Rappi.
Mr. Molina reported the theft to Rappi. The company told him to pay back the $35 he had collected from customers and buy a new cellphone himself. “They never support us,” he said of Rappi.
Like many SoftBank-funded startups, Rappi not only depends on contractors to deliver its services but also offloads its fixed costs — and the risks — onto them. The company harnesses bike and motorcycle riders to deliver everything from flowers to cash. In Colombia, it has 20,000 couriers.
SoftBank’s money has helped Rappi expand into nine South American countries. The company initially offered drivers 3,500 pesos, or around $1, for every delivery — enough to earn more than Colombia’s minimum wage of $8 a day.
In return, couriers provided their own cellphones, bikes and motorcycles. They had to buy a Rappi delivery bag, which costs around $25. And they had to shoulder most of the physical risks of delivery.
In August, a judge in Argentina ordered Rappi and two other delivery services there to shut down until they provided workers with insurance and safety equipment like helmets. Rappi said it would appeal the decision, which it said “puts at risk the continuity of thousands of people’s income.”
In September, a survey of 320 Rappi couriers in Colombia found that nearly two-thirds had been involved in an accident on the job. Almost none were covered by insurance.
Simón Borrero, Rappi’s chief executive, said that Rappi had insurance to pay hospital bills for those injured on the job, but that it did not cover stolen personal items like Mr. Molina’s cellphone.
For couriers, the safety risks have been compounded by wage cuts. Rappi slashed its $1 basic delivery fee by 45 percent last year, around the time its annual losses tripled to $45 million, according to government filings.
In July, around 100 workers protested outside Rappi’s headquarters in Bogotá. They made a bonfire out of the delivery bags.