It’s hard to overstate the credibility Lex got from having attracted a couple of billion dollars in capital from General Atlantic (GA) and SoftBank’s Vision Fund.
GA was one of the most respected big investors around. The Vision Fund had a mixed reputation, especially after WeWork’s initial public offering (IPO) debacle. But many of its bets were starting to pay off in 2020.
Behind the scenes, though, patience with Greensill was wearing thin at both firms, and Lex’s relationship with his two giant backers was under strain.
At SoftBank, Lex’s standing had taken a major hit, in large part because of the very public investigation into the Japanese company’s multiple roles at the Credit Suisse funds. SoftBank didn’t need the bad publicity this kind of investigation attracted. Lex, once the golden boy, was suddenly on the naughty step. His daily calls with Masayoshi Son, his mentor and biggest promoter, ended abruptly.
He also lost the support of his other big cheerleader at SoftBank. Colin Fan, the former Deutsche Bank executive, had been Greensill’s main point of contact at the Vision Fund from the outset. He represented the Vision Fund at Greensill Board meetings and was well known to Greensill’s senior management team. But his star was falling too. In addition to Greensill, he had overseen the Vision Fund’s investments in Fair and Chehaoduo, both of which Greensill had loaned money to. He was also the main Vision Fund executive responsible for Zume, an automated food delivery business that had pitched Masayoshi Son on the idea of using robots to make pizzas. By early 2020, all these businesses were floundering. Fan stopped attending board meetings at Greensill; although it wasn’t announced until months later, he was in the process of leaving the Vision Fund altogether for another part of SoftBank.
That left Rajeev Misra, who ran the Vision Fund. Misra had signed off on the Greensill investment, but he had never been a true believer. His scepticism had only grown in the months since SoftBank had poured billions in.
He had been against the idea of using the Credit Suisse funds to lend to other Vision Fund portfolio companies from the outset. Not because of the perceived conflict of interest. Misra was more concerned about the ‘correlation risk’ – the risk that the fortunes of several portfolio companies would become entangled such that the ups and downs of one of them would affect the lot. Part of the reason for buying stakes in a diverse portfolio of companies is to avoid exactly that problem.
In April, SoftBank used the predicament Lex found himself in – when he had come to SoftBank looking for emergency backing for the Credit Suisse funds – to leverage some concessions and do a kind of governance audit of Greensill. They hired PricewaterhouseCoopers, the giant audit firm, to look through the entire business that spring.
Greensill was still being run like a plucky start-up. Everything went through Lex. Processes were ad hoc. Key policies were non-existent. Many of the weaknesses they identified were like those highlighted by Downes and the risk group. The audit firm came up with a series of recommendations that they said were needed to improve the company’s processes and bring its governance practices in line with what should be expected of a business of Greensill’s size.
Off the back of this report, Misra and SoftBank demanded changes. They wanted a personal guarantee from Lex on some of the money SoftBank corporate had put into Greensill loans. They pushed Greensill to create a new reputational risk committee at board level to manage the company’s growing public relations problems. They forced Greensill to add new board members and advisers – Patricia Russo, chair of the board at Hewlett Packard, joined as an adviser, and Tracy Clarke, the CEO for Europe and Americas at Standard Chartered bank, pledged to join as a non-executive director in 2021.
SoftBank also told Lex to get rid of the private aircraft. It looked flashy, and, more importantly, it was bad for the bottom line. Maintaining a fleet of aircraft was expensive. Lex had long argued that he needed the jet because of his constant travel. It was like a mobile CEO’s office. Misra didn’t buy it. He told Lex: hey, you’re a billionaire, if you want a private jet, buy your own. Just don’t use the company funds to do it.
It wasn’t just Misra pushing Lex to get rid of the aircraft. The question had been lingering for years, and others on the board echoed the Vision Fund chief’s message. The planes were an unnecessary extravagance that would raise questions from other potential investors in Greensill. They were also an obstacle to creating a sound environmental policy, which would be needed if Greensill was to be taken seriously as a major company.
By the autumn, Lex conceded defeat. He would sell the planes, if that’s what the board wanted. If this sounded like a concession, though, it wasn’t a big one. Lex told his inner circle that they would still fly private. He had not committed to any timeline to sell the planes, and he would find some way to keep them anyway, even if it meant shuffling ownership of them into some other Greensill subsidiary company where they would be less conspicuous.
SoftBank’s demands didn’t end with the aircraft. Misra was also pushing Lex to get a brand-name auditor. Greensill was still being audited by obscure firms in London and Sydney. If you are going to go public, he told Lex, that must change. Shareholders will demand that you have a recognizable auditor, probably one of the Big Four – Deloitte, EY, KPMG, PricewaterhouseCoopers. For all their own mishaps over the years, the Big Four were still the main firms to which credible, multinational corporations went for their audit sign-off. Misra even called around his own book of contacts to try to get one of the Big Four to work with Greensill, but none would bite. Some were concerned about Lex’s exposure to Sanjeev Gupta, whose business was too opaque to properly account for it. Given how important Gupta’s companies were to Greensill, that meant it would be difficult to give an opinion on Greensill’s accounts too. Other auditors were concerned about Greensill itself, given the investigations at GAM and Credit Suisse. They were also unsure of supply chain finance, which still sat in an accounting grey area. Greensill even tried to persuade big audit firms including EY and BDO to do other work for him – non-audit work. The idea was that he would build a relationship through some tax or consultancy business. He would at least be able to say that he worked with a big accounting firm, even if they didn’t sign off Greensill’s accounts. That didn’t work either. Lex’s pursuit of a big-name auditor was ultimately unsuccessful.
Around that time, Misra had also sent his own senior credit risk expert to look through Greensill’s book of loans. What he had found was distressing. First, Greensill’s own risk team was dysfunctional. They were cooperative, smart, and answered questions. But they were often overruled by Lex. If their job was to be a key check on the business, then Lex completely undermined that function.
Second, the loan book itself was very problematic. There was some genuine supply chain finance business here. These were mostly safe loans backed by actual invoices between big companies and their suppliers. If the borrower defaulted, there was a real transaction that provided a kind of security to the investors. There was also insurance in place that provided protection against defaults. But far too much of the book of business just looked like unsecured loans, backed by nothing of any value if the borrower couldn’t pay it back. In effect, the investments Greensill was pushing were highly dependent on the insurance they were sold with. Without that, there was nothing much to protect investors at all.
Finally, far too many of the loans were linked to Sanjeev Gupta. About $7 billion was tied to the steel magnate. That would have been too much even if the single client had been squeaky clean. The fact that Greensill’s business was so concentrated in loans to Gupta was especially worrying.
Overall, the SoftBank credit review found that Greensill was, in several crucial ways, a very different business to the one that the Vision Fund thought they had invested in.
In August, the Vision Fund chief also told Lex that Greensill needed to stop spending so much money. Greensill was hiring too fast, and it was paying salaries that were too high. They were burning through cash far too quickly. If Greensill wanted to be taken seriously by investors, the company would have to show some discipline. It sounded a bit hypocritical, given that the Vision Fund had also been pushing Greensill to charge ahead, to build the business at lightning speed. Lex was not interested, telling Misra: ‘You can’t interfere in my business. I’m the CEO.’
Despite his bravado, Lex’s position was not strong.
Lex’s big backers at General Atlantic were also increasingly unhappy. The GA team had really felt uneasy since the SoftBank Vision Fund had become an investor.
In October 2019, weeks after SoftBank’s second huge investment in Greensill, Gabe Caillaux gave an interview with Private Equity News – another Dow Jones publication – that almost read like a warning about the potential pitfalls. Too much money was ‘polluting’ the market for new investments, Caillaux said. ‘I think that’s disruptive for building great healthy companies. Some will work out but we feel really strongly that you should grow in a healthy way.’
The article, written by one of my colleagues, noted that the Vision Fund had followed GA’s investment in several companies, including Greensill.
‘If you look across the GA portfolio globally, SoftBank has invested in a number of our companies,’ he said diplomatically.
Caillaux and the GA team knew that Lex had a strong appetite for big risks, and felt that the massive Vision Fund investment was like throwing oil on a fire. GA and several other members of the board were terrified about what Greensill would do with it all. Their fears escalated at the first board meeting with a Vision Fund representative in the room – Colin Fan, the former Deutsche Bank executive, announced, ‘We didn’t invest in Greensill to be a $10 billion company. We invested for it to be a $100 billion company.’
Lex told executives at the firm and the board that his aim was to double the size of the business.
Caillaux worried that Greensill was addicted to growth when it should have been consolidating its operations. He wanted the company to clean up its act and end some of the riskier practices. These had made some sense when it was a small start-up, but not when it aspired to be a major global company. The business was growing too fast – costs were running high, and crucial systems were yet to catch up with the new scale of Greensill. Many of these issues were the same problems identified by PwC for the Vision Fund, and the same concerns raised by Brett Downes and the Greensill risk team. The real issue was whether Lex was listening.
Having helped turbo-boost Greensill in the first place, GA was rapidly losing its grip, and any ability to influence the company. GA had taken out half its stake when the SoftBank Vision Fund invested in Greensill, and there was a sense among Greensill executives that GA was ‘playing with house money’ – it no longer had real skin in the game. This was clear even as early as the summer of 2019. Lex had been looking to replace his long-time chief financial officer, Al Eadie, who had been with Greensill from early on. Eadie was smart and hard-working. But Lex and the board agreed that the company had outgrown him as a CFO. There was far less agreement, however, on the preferred replacement. Neil Garrod had been the treasury chief at Vodafone, sanctioning the telecoms company’s various Greensill schemes. I caught wind of the plan to hire Garrod at that time and called James Doran to confirm the story. Doran urged me not to go to print, saying Garrod’s appointment was uncertain because he was dealing with some personal issues. It turned out this was yet another misleading interaction with the Greensill PR man. Garrod’s appointment had been held up because it had been questioned by some Greensill board members, including Caillaux. They felt that he was intellectually robust and competent, but that he was a risk-taker and a dealmaker. He was too similar to Lex. He wouldn’t help them rein in Lex’s worst instincts. Caillaux might have won the argument a few months earlier, when GA was Greensill’s biggest shareholder outside of Lex and his brother. But after GA had sold down its stake, it was just another minority shareholder.
GA recommended that Greensill keep the hunt for a CFO open. Lex responded, ‘Thanks for your input. I’m hiring Neil.’
Lex’s behaviour was sending some bad signals. He was extremely smart but seemed to believe he was smarter than everyone around him and took risks that seemed reckless. There wasn’t a loan that Lex didn’t seem to want to extend. He thought he could structure his way around any challenge. He was spending too much money. And he was attracting the wrong kind of attention.
In late 2019, Lex loaned about $170 million from the Credit Suisse funds to a company called Tradeshift Networks, a San Francisco-based platform for supply chain payments run by a Danish tech entrepreneur named Christian Lanng. Tradeshift had been something of a fast-rising fintech star that billed itself as a cloud-based platform for supply chain payments. It had attracted hundreds of millions of dollars in funding and counted investors like Goldman Sachs and HSBC among its backers. Like Greensill, Tradeshift was a so-called tech unicorn with a valuation of more than $1 billion. It had also run into some headwinds. Towards the end of 2019, the company was laying off staff, and it was incurring millions of pounds of losses. BDO, the auditor of its UK accounts for 2018, said it hadn’t been given access to all the information it needed to give its opinion on the accuracy of the financial statements.
Greensill had funded the Tradeshift loan from the Credit Suisse funds. The deal was transacted in unusual circumstances. Lex and Lanng had settled on the terms over a glass of wine in a bar, with Lex sketching out key details on a napkin. The terms were unusual. Whereas supply chain finance deals are typically for just a few months, Tradeshift was given the loan for five years. What’s more, if Tradeshift defaulted, Greensill got to take over the whole business – an odd clause given it would be Credit Suisse’s clients, not Greensill, that would be out of pocket in those circumstances.
It was a huge surprise to GA. They had also looked at making an investment in Tradeshift but decided against it. Yet here was Lex pouring a huge loan into the same company.
By the summer of 2020, Caillaux was riding out the pandemic lockdown at a family home in Spain, where his wife is from. Work carried on remotely. GA was looking at an investment in an up-and-coming UK-based athletic fashion company called Gymshark. The private equity firm was thinking about putting about £200 million into the clothing company, which would value it at more than £1 billion. To close the deal, Caillaux and a few other members of his team had to visit Gymshark’s headquarters in Birmingham, meet with the owners in person and complete their due diligence. You couldn’t make an investment like that via Zoom.
Lex heard about Caillaux’s planned trip. He had hardly seen some members of the board in person for months because of Covid-19. By then, he was also becoming desperate to secure more funding. Could he get another round of money out of GA?
More money would mean he could stave off the worst of the looming crises. It would buy some more time. The private equity firm was a highly credible investor – another injection of cash would offset some of the negative stories about Greensill too. And if he could get GA to put money in, maybe the Vision Fund would follow again.
Lex suggested he would fly Gabe back to Spain on his private plane. ‘We can use the focused time to catch up,’ he told Caillaux.
It takes a few hours to fly from the UK to the island of Ibiza, whose airport is closest to Caillaux’s home. Still, Caillaux didn’t have time for pleasantries. Lex might have been planning to try to secure more funding, but the conversation quickly took a dive. Instead of discussing another round of investment in Greensill, the GA executive brought up his long list of concerns about Greensill’s risky behaviour.
‘You’re going too fast. You’re making too many mistakes,’ he warned Lex. He was particularly unhappy with the loans to the SoftBank Vision Fund companies, which seemed to have been based on a loose guarantee of SoftBank’s support if things went wrong. But his frustration with Greensill was much more than that. Caillaux was losing his cool. The whole business was in jeopardy if Lex didn’t rein himself in. He had to understand what was at stake.
There could have been no misunderstanding about the nature of the conversation, but it wasn’t clear that the message ever really landed. Afterwards, back in the UK, Lex told his inner circle of senior managers that he expected GA would invest another $500 million into Greensill soon. That would have been a real vote of confidence, had it been true. Instead, it was deeply at odds with the tone of their airborne discussion.
A few weeks after the flight, Caillaux sent a long list of demands to Lex and the board, demanding improvements in the way the company was governed. He wanted a new audit chair and a new CFO. GA’s representative on the audit committee resigned. They wanted Greensill to make a renewed effort to get a bigger-name auditor.
Despite the role GA had played in accelerating Greensill, Caillaux and Lex were never especially close on a personal level. The two men, roughly the same age and each with young children, rarely socialized together. This was not the kind of master and apprentice relationship Lex had once had with Masa. By late 2020, though, Lex’s connections to Masa and Caillaux were in a similar state – almost entirely broken.