Having returned from my annual trip to Silicon Valley, I’ve been assimilating all the talking points that emerged as I went about meeting investors and founders. As was expected, the conversation starter this time around at most of these meetings was SoftBank.
Softbank’s $93 Billion Vision Fund ( which may swell up to as much as $900 billion) started deploying slugs of capital this year in various Silicon Valley and US tech startups arresting everyone’s attention.Considering the average size of these cheques, which typically are upwards of $500 million, the investment vehicle is obviously the new hot thing to unravel for everyone there. Some call the whole SoftBank phenomenon “unreal”.
The tech media is evidently hopped up, trying to put out as many stories as they can about the Japanese telecoms and internet group which was so far largely known in the US for its acquisition of Sprint, the telecoms company in 2012. But SoftBank is a different beast today.
Steered by its maverick founder Masa who is on a world altering mission through investments in future technologies, having begun with his maiden bet on the Chinese e-commerce behemoth Alibaba back in 2000.
What struck me amid all of this, as I read reams on SoftBank and Masa ( and continue to read some more) and met people in the Bay Area tech fraternity, is how similar all of this is to when the Indian tech press and the larger ecosystem was in the process of discovering the group back in 2014.
What added to the storyline at the time was the flamboyant ex-Google hotshot executive Nikesh Arora who was hired by Masa as his trusted lieutenant. The two swooped down on India, sprayed capital in startups like Snapdeal, Ola, Housing, Oyo and Grofers, all in a span of about a year. Even then, the same worries were being highlighted about SoftBank spending very little time in due diligence before closing deals and about the dizzying valuations at which money was being raised by startups with no real business models.
I’d met and interviewed Masa and Arora twice between 2014-16. Arora was this flamboyant deputy and the perfect foil to Masa. Who’d have known that by mid of 2016, Arora would abruptly leave the group because he wouldn’t become Masa’s successor as announced publicly. He told me in an extended interview just a few days after stepping down that waiting for the top job didn’t make sense for him.
I asked myself if there’s any difference in how SoftBank approached investing in 2014 in India and what’s happening now in Silicon Valley? For starters, three years ago SoftBank did not have a gargantuan sized Vision Fund, and was investing out of its balance sheet. Also the focus of investing was mostly on consumer internet and a bulk of its wagers were in the south east Asia and India region (Arora’s presence was partly the reason for that). With the Vision Fund, the canvas is far bigger and the mandate from Masa is to invest behind a wide range of future technologies like robotics, biotech and artificial intelligence.
Recently when I spoke to Rajeev Mishra, another Indian who is heading up the Vision Fund, it was apparent the fund was aware its mammoth size was a big advantage for it to win deals.
A VC told me the other day, “No other investor can match them (SoftBank) in the near future. They are also looking to add another $200 billion. It remains to be seen how this will play out,” he said.
This is again similar to what happened in India three years ago when SoftBank became the hottest investor in town, no one knew what was the long-term effect of this windfall of capital into companies.The questions around SoftBank are still the same— a massive pool of capital which can distort valuations, an investing team which is not known for scoring technology deals, and the large stakes they hold in companies along with favorable terms that come as a result of it.
But like in the period of 2014-15 when Indian founders took money from SoftBank as it was readily available, so are their counterparts in the US.
What’s the choice really, would you let them back your rivals, asks an entrepreneur while talking about the current Softbank driven tech investing market.
And with the cross over funds and mutual funds (folks like Fidelity and T. Rowe Price) more or less having disappeared from the investing landscape, Silicon Valley has only one giant backer of the size of SoftBank to go to for private money in the near future. I wrote a piece about how SoftBank emerging as the new IPO for many tech companies and providing secondary sale options to early VCs.
It remains to be seen how things pan out over the next few years and whether or not these billions of dollars being pumped into hot Silicon Valley startups by SoftBank would lead to unfortunate fallouts like the ones we saw in India between the fat cat investor and its portfolio companies like Snapdeal and Housing.
For now though SoftBank is stirring up Silicon Valley and no one is complaining.