INSIDE MASAYOSHI SON’S ECCENTRIC DEAL-MAKING
Early last year, Cheng Wei, founder and chief executive of the Chinese ride-hailing juggernaut Didi Chuxing, tried to resist taking money from legendary investor Masayoshi Son. Cheng told the SoftBank Group chief he didn’t need the cash because his company had already raised $10 billion, according to people familiar with the matter. Fine, Son said, then suggested he might direct his support to one of Didi’s rivals. Cheng relented and took the investment: $5 billion in the largest fundraising round ever for a tech startup.
Son pulled a similar manouver in November, publicly warning Uber Technologies that if he didn’t get the deal he wanted, his backing would go to archival Lyft. Uber also took the money in a $9-billion investment unveiled last week.
Son has been an unstoppable force in the technology world over the last year. As he lined up a roster of big backers — Saudi Arabia’s crown prince and Apple’s Tim Cook among them — for SoftBank’s planned $100-billion Vision Fund, Son took stakes in scores of businesses engaged in a dizzying array of activities: ride-hailing, chip-making, office-sharing, satellite-building, robot-making, even indoor kale-farming.
Son’s idiosyncratic deal-making has confounded admirers and detractors for years. In deal after deal, according to people involved, Son pressed to meet founders face to face, encouraged them to take more money than they wanted and wielded his outsized checkbook as a weapon. Along the way, he rattled rivals with his growing influence and changed the game of startup investing.
“There really isn’t a precedent for this,” says Steven Kaplan, a professor at University of Chicago’s Booth School of Business who cofounded its entrepreneurship programme. “The jury is still out on whether it will work.”
Son’s investment strategy defies easy categorisation. He portrays himself as a true believer in the information revolution, a proponent of the so-called singularity — the notion that one day computers will mesh with human brains and bodies. But Son’s skeptics wonder how ride-hailing fits with money management. Or what satellites have to do with indoor farming.
Son, 60, has made hundreds of investments since he founded SoftBank in 1981. But Son’s reputation rests almost solely on one transaction: An investment in Alibaba Group Holding that started with $20 million in 2000. SoftBank’s stake is now worth about 15.5 trillion yen ($138 billion), one of the most lucrative venture investments of all time. But many people think that was a fluke.
Son declined to comment for this story. A SoftBank spokesman said his track record of success goes well beyond Alibaba and
Son’s investment strategy defies easy categorisation. He portrays himself as a true believer in the information revolution. But he has skeptics aplenty
includes investments in Sprint, Yahoo! and Supercell.
The latest deal-making spree began in September of 2016. Mohammed bin Salman, deputy crown prince of Saudi Arabia at the time, flew to Tokyo as his country was looking for ways to diversify beyond oil. He met with Son, who pitched the idea of setting up the largest investment fund in history to finance technology startups. In less than an hour, bin Salman agreed to become the cornerstone investor. “Forty-five minutes, $45 billion,” Son said on The David Rubenstein Show in September. “One billion dollars per minute.”
Son made about 100 investments last year with a value of $36 billion, according to research firm Preqin. That’s more in dollar terms than Silicon Valley’s top two heavyweights, Sequoia Capital and Silver Lake, combined.
More surprising, given the numbers is that SoftBank is largely a one-man show when it comes to deals. Lieutenants pitch Son ideas, but he makes the final decisions — and he generates plenty of his own. Tellingly, he is the only so-called key man in the Vision Fund. “It’s 100 per cent Masa,” says one CEO who agreed to sell Son a stake in his company. “Okay, 99.9 per cent Masa.” Son typically brings in his bankers when there’s a complex deal structure.
The SoftBank spokesman said decisions are “made by the organisation after due diligence and process.” Son often invites founders to Tokyo to talk face to face, conversing in English. “He asks a lot of questions,” says Greg Wyler, the CEO of satellite provider OneWeb, which received a $1-billion SoftBank investment in December 2016. “If you like thinking really hard and really fast and you like thinking through the art of the possible, it's a wonderfully motivating experience.” His questions are usually focused on prodding founders to think more broadly about opportunities.
Eugene Izhikevich was invited to Tokyo in May. A prominent Russian neuroscientist who lives in San Diego, he runs a startup that builds brains for robots. Izhikevich pitched Son on investing “tens of millions” so his company could develop robots that would find widespread use in a decade or two. The Russian realized Son wanted to give him more money than he was requesting — on the condition that Izhikevich accelerate his work. Son wanted a full range of robots in three to five years. In July, SoftBank announced a $114-million investment in Izhikevich’s Brain. The Russian appreciates the money, but admits he now feels the pressure of living up to Son’s expectations.
Son is largely hands-off after cutting a check, though he stays in touch with founders by phone and email.
Son has faced skeptics his entire life. He grew up on the southern Japanese island of Kyushu, bullied as a child because of his Korean ancestry. His father more than made up for the abuse, doting on his son and praising him as a genius for his business acumen. Son left Japan at 16 to study in the US and launched his career as an entrepreneur while at the University of California at Berkeley. He brought Space Invaders game machines from Japan to the US and invented an electronic translator that he sold for about $1 million.
Son likes to talk about how he proved doubters wrong after returning to Japan to build his empire. He made early investments in Yahoo! and Yahoo Japan, as well as Alibaba. He took over Vodafone's Japanese wireless operation. He persuaded Steve Jobs to give him exclusive rights to the first iPhone in Japan.
He stumbled plenty, too. During the dot-com boom, Son was one of the most enthusiastic investors, backing more than 800 startups. But with the crash, almost all those companies failed. Son had the distinction of losing more money than anyone else ever had — $70 billion.
Chris Lane, an analyst with Sanford Bernstein, says about eight in 10 of the investors he talks with are skeptical of Son. They see him as a solid telecom operator who is taking enormous risks with his investments and has demonstrated no special skill in technology investment. Critics not only don't believe Son can pick the next Alibaba; they're convinced he's going to squander what he already has. “If you think of this as a telco making unrelated investments and likely to lose money, then maybe the discount is right,” Lane says. “If you think this is a sophisticated technology investment firm with a strong track record, then this is an unbelievable opportunity.”
Perhaps no Son investment is more important to his reputation than the one in Uber. The SoftBank chief is betting heavily on Chief Executive Officer Dara Khosrowshahi, who has pledged to repair a toxic culture, overcome regulatory pushback and take on mounting competition before leading Uber to a successful IPO. “This is a critical test for SoftBank and whether they can deploy large amounts of money in late-stage investments,” Lane says. “The market will judge [Son] by the Uber IPO.”
Son holds a potentially commanding position. SoftBank has stakes in the biggest ride-hailing startups in the US, China, India, Brazil and Southeast Asia. Four of the SoftBank-backed startups compete with each other, including in key markets like India and Indonesia. So Son may encourage the rivals to make peace, merging operations in certain countries to save billions.
But there's a limit to what Son can do. He doesn't hold controlling stakes in any of the companies, including Uber and Grab. So he can't force them into deals if management or other investors resist, but he may help them see their own economic interests.
Longer term, Son will have to do a better job articulating how his deals fit together.