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 fund ever created and bigger than any private equity fund in history.
Son stared at the number for a moment. Then he 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—executives from a state-owned fund in the Middle East—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.
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 Inc. That stake is now worth roughly $120 billion.
In less than a year since the fund first began making investments, it has already committed $65 billion to acquire big 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 U.S. venture capital 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 venture capitalists have found themselves outmaneuvered by a relative newcomer.
The standard VC playbook involves making small, speculative investments in early-stage startups and adding funds in follow-on rounds as those startups grow. 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 in a given category.
SoftBank, according to a partner at a major Silicon Valley firm, is “a big stack bully,” a poker term referring to a player with a pile of chips so huge that competitors are afraid to get in the game.
SoftBank’s success in pushing fast-growing startups into a dominant position gives Son an advantage when negotiating for a stake in a company. He hasn’t been shy in pressing that advantage. In 2015, online lending startup Social Finance Inc. was looking to raise a few hundred million dollars, but Son wanted to invest more. According to SoFi co-founder Mike Cagney, Son told him that he was going to invest $1 billion in online lending—whether that capital went to SoFi or its competitors was up to Cagney. The entrepreneur opted to take the deal.
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 venture capital firm.
To show a 20 percent 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 capitalization and at least two with market caps of over $100 billion, according to research published by EquityZen Inc., a platform for trading stock in privately held companies.
TL;DR: You have a very aggressive investment firm that is shoving money down startups' throats, or threatening to give those money to their competitors if they refuse. And those illiquid investments are backed by large amount of debt.
Submitted September 28, 2018 at 08:56PM by COMPUTER1313 https://ift.tt/2zEyRM6
