National Post (National Edition)
Canada too small for SoftBank's Vision Fund: exec
Most Canadian companies ‘struggling’
TORONTO • A representative of one of the world’s largest tech investment vehicles was in Toronto Monday, but don’t expect SoftBank’s US$100-billion Vision Fund to start buying into Canadian firms anytime soon.
Yoshiaki Tanaka, a senior director at SoftBank Telecom America Corp., spoke about the Vision Fund at a Toronto Regional Board of Trade event titled “Finding Unicorns: Insights from SoftBank’s Global Tech Scout.”
In an interview following his talk, Tanaka said such unicorns were hard to come by in Canada, where companies were for the most part too small to be of interest to the fund.
“This is my personal opinion: The biggest point is that Canadian people are living close to the border — 36 million population. They are looking at the United States economy because the language, culture, geography, it is super easy,” he said.
“This is one of the challenges. Most of the Canadian companies are still struggling at Series A or Series B. After that, the United States companies acquire the (Canadian) companies, if they have good technology.” There are currently no Canadian-based firms among 82 companies in the fund’s holdings, which include Uber Technologies Inc., WeWork and Slack Technologies Inc. (which had headquarters in B.C. before moving to California). The fund was started by SoftBank founder Masayoshi Son in 2017 to focus on latestage venture capital investments. It invests a minimum of US$100 million, and sometimes much more. In Canada, only three disclosed venture capital deals last year were worth more than $100 million according the Canadian Venture Capital and Private Equity Association.
When the fund launched, its single largest investor was the Saudi Arabian government. Son has boasted that he secured US$45 billion from Crown Prince Mohammad bin Salman in a 45-minute meeting.
Some of its biggest bets, however, have not been performing well.
The fund put US$7.6 billion into Uber in 2018, and since the company IPO in May of this year, shares have dropped by nearly 30 per cent. Slack, another technology company that SoftBank backed, is down more than 35 per cent since the company went public earlier this year.
And then there’s WeWork, the office space company that rents out co-working space in urban centres. SoftBank has poured nearly US$11 billion into the company in successive round of venture capital investment, raising the startup to a total valuation of US$47 billion.
But over the summer when WeWork filed paperwork for an IPO, investors got a look at the company’s financials, including disclosure that then-CEO Adam Neumann bought office buildings and rented them back to the company, and that he personally trademarked the word “We” and then sold it to the company when they rebranded as The We Company.
“Hey, of course WeWork is cash-negative, Uber is still cash-negative,” he said. “But they are disrupting an industry, and ... Wall Street guys, or investment guys, or journalist guys are looking at just two or three years time frame. But AI is changing over three decades, or 300 years.”
The Vision Fund is particularly controversial among competing venture capitalists, who say it has warped the whole industry, and inflated valuations by throwing so much money around. “Softbank’s vision fund has had an impact on the global VC space, simply by its sheer size given that the majority of VC’s invest in smaller cheque sizes," said Sam Ifergan, founder of Toronto-based iGan Partners, a venture capital fund focused on health tech. “The concern is that the fund would end up raising investment valuations for early stage companies. Unicorns whose business models are predicated on losing $1.50 for every $1 in revenue, better retrench very quickly.”
Tanaka said the Vision Fund is disrupting venture capital, and in turn, the investing strategy of Son is to look for companies that can disrupt industries by breaking regulatory structures. Looking at the world that way, one of Tanaka’s suggestions to the Toronto audience was that Canadian business might do well to combine two areas of strength — artificial intelligence and health care.
He elaborated on that idea after the talk.
“The key thing I’m looking for is No. 1, the total addressable market, and how to break the market compared to its incumbent players — in the health space, in the mobility space,” Tanaka said.
“We will announce shortly we have health-care companies. It’s not necessarily fitting to the regulation, but high demand and an aging society and a lot of dementia, Alzheimer’s.”