SOFTBANK TO RAISE $100-BN FUND EVERY 2-3 YEARS
Two years ago, Masayoshi Son, chief executive of SoftBank, sat in a Gulfstream jet high above the Arabian Gulf, en route to meet with potential investors in a new fund that would invest in tech start-ups. He was going through his presentation with Rajeev Misra, a key lieutenant, when something stopped him.
One of the slides included the proposed size of the fund: $30 billion. The figure would make the Vision Fund, as Son had named it, about four times the size of the largest venture capital (VC) fund ever created and bigger than any private equity fund in history. Son stared at the number, deleted the three and replaced it with a one and another zero. “Life’s too short to think small,” he told a stunned Misra. When Son came to the $100-billion slide in his presentation a few hours later, the prospective investors laughed. Son didn’t, continuing his presentation as if nothing had happened. “He didn’t miss a beat,” recalls Misra, now the fund’s CEO.
“One hundred was a simpler number,” Son says during an interview at the Tokyo headquarters of SoftBank, a sprawling conglomerate. As an investor, Son has been prescient. He was one of the earliest backers of Yahoo! and then teamed up with the dot-com-era darling to launch Yahoo! Japan, a property that wound up being much more valuable than its parent. In 2000, he put about $20 million into Alibaba Group Holding. That stake is now worth roughly $120 billion.
But the Vision Fund is something new: An all-out blitz on the heart of Silicon Valley venture capital, Sand Hill Road. In less than a year since the fund first began making investments, it has already committed $65 billion to acquire stakes in Uber, WeWork, Slack, and GM Cruise. Son tells Bloomberg Businessweek that he plans to raise a new $100 billion fund every two or three years and will spend around $50 billion a year. For perspective, in 2016, the entire US VC industry invested $75.3 billion, according to the National Venture Capital Association.
Son’s audaciously large bets have astonished and confused Silicon Valley, where even the most respected VCs have found themselves outmaneuvered by a newcomer. The standard VC playbook involves making small, speculative investments in early-stage start-ups and adding funds in follow-on rounds. SoftBank’s strategy has been to put enormous sums — its smallest deals are $100 million or so, its biggest are in the billions — into the most successful tech startups. The tech industry has seen deeppocketed outsiders before, but Soft
Bank is operating at a scale never attempted. That’s driven valuations up, making it difficult for traditional firms to put together enough capital to get into the hottest deals. The situation has sent firms scrambling to adapt. Sequoia Capital is raising funds worth $12 billion to stay competitive. That’s up from about $1.7 billion during a similar period five years ago. Sequoia’s longtime rival, Kleiner Perkins Caufield & Byers, announced in mid-September that it was breaking up.
Son founded SoftBank in 1981 as a distributor of PC software. That led to investments in Ziff Davis, the computer trade publisher, and Comdex, the now-defunct trade show in Las Vegas. In 1995, Son wrote a $2 million check during his first meeting with Yahoo co-founder Jerry Yang. He came back a month later offering a $100 million investment, far more than Yang was willing to accept at first. The shock-and-awe offer would become Son’s go-to move.
By 2000, Son had made hundreds of investments and had briefly become the world’s richest man. But then the dot-com bubble burst, and SoftBank lost 93 per cent of its market value. A widely reported but apocryphal story says Son lost $70 billion from his net worth in a single day. In reality it took a little over a year. He’s now worth $18 billion, according to a Bloomberg analysis. Son never stopped making deals. Hong Lu, Son's first business partner, says that Son seemed to be fighting for his life and spent most nights in his office during his postdot-com scramble. “I thought he was going insane,” Lu says. “He would have meetings at midnight, 3 am.” In 2006, Son struck a deal to buy Vodafone Japan and then landed an exclusive deal to distribute the iPhone, which turned around the struggling carrier.
By 2010, Son seemed to be settling into middle age as an opportunistic dealmaker. But he surprised investors that year with a twohour speech at a shareholders meeting that attempted to articulate a plan for the next 300 years. The Vision Fund is now run by nine managing partners — five at the fund’s Silicon Valley outpost, two in Japan, and two in London. Son says he personally trained these “hunters” on how to find the best investments and plans to increase the number of dealmakers to 300 over the next few years.
Hardball tactics aside, others have raised questions about whether SoftBank’s megadeals will be profitable for Son or his backers in the long run. The Vision Fund’s war chest includes about $40 billion in debt, an unusually risky structure for a VC firm. Investors have contributed a mix of capital in the form of equity and debt at a 7 per cent interest rate. This reduces risk to investors, but it means that SoftBank, which contributed $28 billion in equity, is taking on more risk.
To show a 20 per cent internal rate of return on its own capital-which would be a solid return for a VC-SoftBank would need to produce lots of startups with a $10-billion market cap and at least two with market caps of over $100 billion, according to research by EquityZen, a platform for trading stock in privately held firms. That’s a tall order, but Son says delivering high returns should be no problem. He claims that since 2000 his investments have returned 44 per cent annually. For now, investors have bought into his pitch. In late September, SoftBank shares hit their highest level since March 2000, the start of the dot-com crash.
There’s also the question of succession. At one time, Son’s heir apparent was former Google executive Nikesh Arora, but he left two years ago, in part because he worried Son wasn’t going to leave anytime soon. At the time, Son announced that he planned to stay on as CEO of SoftBank for 5-10 more years. He compares succession to a relay race, adding that he hopes to turn over the baton to someone who can handle his pace. “The best batoning is that the guy is running without slowing down, maybe even accelerating at the end,” he says. “And the new guy: rocket start.” So who’s the new guy? “I don’t know,” says Son. “I will identify within the next eight years.”
With Pavel Alpeyev
The Japanese dealmaker says he will raise a new $100-billion fund every few years. Silicon Valley’s disruptors struggle to keep up