SoftBank Vision Fund 2 – $100 Billion to Shape the Next Decade of Tech
SoftBank (TYO:9984). From an obscure (to much of the world) Japanese telco to a $100 billion structured finance unicorn hunting house (read my dig into the background of the Vision fund here), it’s fair to say that it has managed to turn the world of traditional venture capital investing on its head since it hit the scene with a huge amount of cash. Since then there have been huge investments, profits, complaints, supersized valuations and IPOs aplenty. Every move it makes, whether it’s into dog walking apps or Brazilian gyms draws remarkable levels of scrutiny and now, just as the world thought it would be able to start taking a breather, the firm is launching the Vision Fund 2, even as people begin to question whether it has run out of ideas.
Let’s rewind a bit first however and talk about the Vision Fund’s modus operandi for investing. SoftBank has typically taken the approach of a big stack poker bully, riding into every hand and punishing anyone in its way with lots of chips. The vast sums of cash it wields to get stakes in the companies it wants have left many traditional VC firms out in the cold as they tend to look for value while SoftBank, when it identifies a suitable target gives more money than a firm was necessarily looking for with a “grow like mad or see our money get invested in your competitor while you die” approach. For those that have the business plans to scale and do so quickly, it can bring success the likes of which could have taken decades without them.
The difficulty however is that this growth has come during the longest bull market run in history and while that alone has pushed valuations up, SoftBank has effectively poured gasoline on the fire and supercharged it, something we have seen with recent valuations resulting in some slightly underwhelming IPOs (yes, I’m looking at you Uber NASDAQ:UBER) which is still bumbling along basically at its IPO price.
That much said, the unicorn investing game is a tricky business spreading bets in the fashion that it does means that you only need a few to hit the big time for the money to roll in and SoftBank has had its share of hits. It’s worth remembering that although IPO investors in Uber have yet to realise any material gains, SoftBank invested in the firm in its most recent round at a valuation of $48 billion which is obviously significantly below the current market cap sitting at around $73 billion. Nothing compared to the $20 million it put into Alibaba (NYSE:BABA) 19 years ago which materialised into a $60 billion stake when it went public 5 years ago (and up another 60% since then).
Recent Concerns – Lack of Vision?!
SoftBank recently surprised some industry players when it invested in… another investment firm! It put $800 million into Greensill Capital, a firm focussed on capital provision to small and medium sized companies. Some argue that this marks the beginning of the end, signalling that SoftBank is losing its golden touch for identifying companies which will become the next big thing but it’s worth keeping in mind that it has often focussed its attention on late stage startups which are already well established but not yet publicly listed.
This makes sense when you think that if SoftBank was putting money into tiny companies with a few million at a go, it would never burn its way through its $100 billion war chest so in that sense, it is logical to outsource the finding of the small companies which have potential to someone else while it keeps its eye on the bigger prizes and ensuring it has a network of CEOs businesses under its umbrella that can all work together to make the whole greater than the sum of its parts.
Other concerns centre on its reliance on the Saudi Public Investment Fund which is a major backer of the first Vision fund having contributed $45 billion to it, with rumours that it will offer a similar amount to the second iteration. A balancing act probably needs to be struck between giving it enough of a stake to be happy and not too large a stake that the fund is perceived to just be another arm of the PIF.
SoftBank Vision Fund 2
So for now, talk is that the fund is courting possible investors for round 2 with up to half of the money coming from SoftBank itself. Goldman Sachs (NYSE:GS), Centricus and Cantor Fitzgerald are advising and have allegedly initiated informal discussions with the sovereign wealth funds of Singapore, Saudi Arabia, Abu Dhabi, Kazakhstan and Oman. Formal talks are expected to begin in July and are hoped to wrap up in March 2020.
Raising funds now is probably as good a time as any to do it. If/when a market downturn comes, getting commitments of cash for multi-year lock in periods where no returns are likely to be realised until firms come to public markets will be harder so it makes sense to get while the global economy is still riding high. It has been shown to have the golden touch once, we’ll see if they can do it again with the Vision Fund 2. The future of our technology world may very well depend on it.