After venture capital spending hit an all-time high in 2018, evidence that the VC bubble may finally be about to burst has continued to mount, just as some of Silicon Valley's most overvalued tech darlings have been preparing for their long-anticipated public offerings.

And in the latest sign that Silicon Valley's latest crop of unicorns could be headed for a brutal "down round", the Wall Street Journal reported on Monday that the two biggest backers of Soft Bank's $100 billion Vision Fund (the Japanese telecoms conglomerate/VC giant and the Bay Area tech scene's most reliable marginal investor) have been complaining about the high valuations at which it has invested in some of its holdings.

In addition to being one of Uber's largest shareholders, with a $9.3 billion stake, the Vision Fund has also invested in WeWork, dog-walking service Wag, GM Cruise and DoorDash among its investments, according to ReCode.

Masayoshi Son

The backers in question are Saudi Arabia's Public Investment Fund and Abu Dhabi’s Mubadala Investment Co, who together have contributed roughly two-thirds of the Vision Fund's capital. Should they balk at the relationship, it could spell trouble for any deals that the fund has planned, because according to the most recent reports, Vision has only deployed about $60 billion of its $100 billion in capital, and reportedly has about 20 deals in the pipeline.

While Soft Bank's chairman Masayoshi Son and the Saudis have maintained a cordial relationship, at least in public, the reports of the Saudis dissatisfaction with the Son and his management style isn't all that surprising. The FT reported earlier this year that Soft Bank had abruptly scaled back plans to increase its stake in WeWork by $16 billion. The fund ended up investing another $2 billion, one-eighth of the originally planned investment.

Apparently, the WeWork investment wasn't the only deal to collapse in recent months. Plans for Soft Bank to increase its investment in Hong Kong-based AI startup SenseTime in a joint $1 billion investment with Mubadala.

Soft Bank had invested several hundred million dollars into SenseTime last fall, bringing the company’s valuation to about $7.7 billion, according to people familiar with the deal. The Vision Fund then considered making a joint $1 billion investment with Mubadala in SenseTime, as part of a potential fundraising round that could value the company at $10 billion, according to people familiar with the matter. The deal never came together after Mubadala backed away in recent weeks, people familiar with the matter said. The fund balked at what it considered a high valuation target, a person briefed on the matter said. Some Vision Fund employees also considered the valuation to be high, some of the people said. SenseTime rival Megvii Technology Inc. is currently raising funds at a $3.5 billion valuation, according to people familiar with the matter. SenseTime and Mubadala said they weren’t aware of any potential co-investment by the Vision Fund and Mubadala, and SenseTime said it never launched a $1 billion financing round at a valuation of $10 billion.

In addition to the fund's investment strategy, its backers are also growing suspicious of a practice that's peculiar to the Vision Fund: Soft Bank's strategy of investing in companies first, then transferring the stakes to Vision Fund. The fund's backers are reportedly worried that Soft Bank is trying to take advantage of high valuations to realize gains for itself at the expense of Vision's investors.

One person familiar with the Middle East investors’ thinking expressed concerns about whether Soft Bank was taking advantage of high tech valuations to crystallize gains at the expense of PIF and Mubadala. Soft Bank has transferred, sold or is planning to sell to the Vision Fund at least $26.3 billion worth of stakes in companies that it originally purchased for around $24.9 billion during the past few years, according to company filings. Soft Bank’s transfers include a stake in Chinese car-hailing giant Didi Chuxing Technology Co., which it bought for $5.9 billion and has agreed to sell to the Vision Fund for $6.8 billion, and a stake in Indian hotel-booking site OYO Hotels, which it transferred to the Vision Fund last year for double the $100 million it paid in 2015. The issue isn’t necessarily the premium over Soft Bank’s cost for the investments; it is that the company is buying and transferring stakes while the market is high, potentially setting the fund up for losses.

Another complaint is that Soft Bank has been inadvertently ballooning valuations by leading large financing rounds...

In some cases, Soft Bank itself has contributed to rising valuations by leading massive fundraising rounds. In OYO’s case, Soft Bank or its Vision Fund have led increasingly large financing rounds, culminating in a recently closed $1 billion investment, which pushed the startup’s valuation to around $5 billion, according to people familiar with the matter. That is 13 times as high as when Soft Bank first invested in 2015, according to investment data tracker Dow Jones VentureSource.

...And concerns about Masayoshi Son's increasingly autocratic investment style have also been cropping up.

Concerns about valuation of the fund’s investments are closely linked to concerns about its investment process, in particular the power wielded by Mr. Son. In recent weeks, Mr. Son overruled objections from partners within Soft Bank to a Vision Fund investment valued at as much as $1.5 billion into Chehaoduo Group, a Chinese online car-trading platform, according to people familiar with the matter. Chehaoduo was accused of fraud in recent weeks by a competitor. A spokeswoman for Chehaoduo pointed to a statement from January that denied the accusations. Mr. Son told The Wall Street Journal that Soft Bank had conducted its own due diligence and found the accusations groundless. The investment would value Chehaoduo at $8.5 billion, according to a person familiar with the deal. One of the company’s competitors, Nasdaq-listed Uxin Ltd., has a market capitalization of $1.18 billion, while another, Hong Kong-listed Yixin Group Ltd., is valued at $1.75 billion.

Perhaps, after Chamath Palihapitiya, the Silicon Valley investor behind Social Capital, warned that venture investments had become like a "Ponzi Scheme", more of the Valley's biggest backers are having second thoughts about the high valuations to which they have so blithely contributed in recent years.

If true, this could have repercussions across a broad range of markets, from Silicon Valley real-estate to the tech sector, particularly as the next round of hot unicorn IPOs approaches.