The world's largest-ever tech investing fund is raising concerns over deal value, volume, demand, and supply.
The SoftBank Vision Fund, first announced in October 2016, has now closed at least $93B of a target $100B to invest in global technology companies – making it the largest tech investment fund in history. With moonshot ambitions to enable “the next stage of the Information Revolution” using only private capital, the Vision Fund will make $100M-minimum investments in late-stage startups in areas such as IoT, artificial intelligence, and robotics. The fund’s leaders are currently scouting investments in quantum computing and are in talks to invest in UK delivery startup Deliveroo, according to reports.
$100B is an unprecedented sum for a single fund, totaling almost exactly the same amount that all VC-backed companies received in 2016 ($100.8B across 8,372 deals globally, per CB Insights data). Yet the fund’s massive size is raising concerns among some investors, who fear that an influx of high-dollar rounds could overinflate the market and prolong exits while crowding out competing investors.
The Vision Fund’s rarely used fund structure is amplifying anxieties: the fund has asked outside investors to contribute “a big slug of debt” in addition to equity, according to the Financial Times, giving SoftBank much greater exposure to the upside while lessening their downside risk. And though the fund’s key man, SoftBank CEO Masayoshi Son — who is known to have final decision-making power over all SoftBank investments — has earned investors a 44% annual rate of return over the past 18 years, he also notoriously lost $70B in the 2000s dot-com bubble.
With both Saudi Arabia and the UAE — which have contributed a combined $60M of sovereign capital to the fund — counting on the Vision Fund’s investments to diversify their national economies, the stakes are high. Other high-profile investors are also placing bets with the Vision Fund: The Vision Fund has closed contributions of $1B or less from Apple, Qualcomm, Sharp, Foxconn, and Larry Ellison’s family office. (SoftBank’s own $25B rounds out the $93B secured so far.)
With a final close for the last $7B expected before year-end 2017, some of the world’s top VCs may still be weighing involvement, while others are already starting to speak up.
CB Insights rounded up thoughts from top VCs and other players in the tech ecosystem, which we’ll update as more investors weigh in. See a quote we should add, or want to share your input? Let us know in the comments.
Along with this, you can see all of the investments Softbank has made so far here with our Softbank Investment Tracker.
Giant fund can help push giant trends
Michael Mathiesen, of 7 Star Investments, thinks that shifting global trends towards cutting-edge tech will be a major advantage for SoftBank. “If you’re at a government level and want to change an emphasis to robotics, or something similar, you need big funds to change the model. “I think the giant funds like this one are definitely useful for major projects and pushing trends,” he adds. Mathieson is concerned that Son’s money will come without the required industry knowledge or savvy. CEOs are already too concerned with today’s share price, he argues: if hundreds of millions come at once, their outlook could shorten even more. “If they are not careful they can be used to hype the valuation,” he says. “Which would be stupid for everyone because you have to deliver.”
Source: Red Herring
“Early stage funds are several layers removed from when SoftBank will come in. That being said, it does give early stage funds as well as angels a bit of comfort knowing that there is a very large investor who is interested in writing very large cheques into market leaders. As an early stage fund, can we support companies to be attractive to the Series A, B and C guys, and eventually SoftBank? Hard to say but it is definitely nice to know the target is out there. Secondly, it could be a good source of liquidity for early stage funds that may need to return capital to their investors and selling small stakes in secondaries would be a big relief.”
–New York City-based VC Pankaj Jain
Source: Economic Times
Emanuele Levi is general manager at 360 Capital Partners. He believes that the Vision Fund can help plug a gap in the number of buyers available to entrepreneurs working in verticals at the pioneering edge of tech. He says, “To have $93bn they will be buying a lot of companies, and we have a lack of buyers.” Not only that, but Levi hopes SoftBank’s move will encourage other multinational organizations to club together and build megafunds of their own. The US “probably doesn’t need one,” he jokes. But Europe should definitely take notes. “If we believe these industries are going to be key in the coming years, Europe should have a similar, sovereign-style fund to protect the European players.”
Source: Red Herring
“More money translates into more people going entrepreneurial. It is a symbiotic relationship between people opting for entrepreneurship and funds coming in. The startup ecosystem is getting more excited irrespective of how that Fund utilisation is going to happen.”
–Indian Angel Network president Padmaja Ruparel
Source: Economic Times
On late-stage deals & exits
“I see SoftBank as less of a threat to the current VC market, and more of an opportunity to the not-so-crowded later-stage funding ecosystem–and even as a possible new door to the coveted exit that we all look for through M&A and IPOs.”
–David Sola Varela, analyst at Caixa Capital Risc.
Source: Red Herring
Takayuki Kamaya, a former aide to Son, said his old boss always aims to acquire the biggest players in a particular industry. “Fundamentally, it’s not really his style to invest small amounts in fledgling startups that may take decades to produce returns,” Kamaya said. “Rather, he aims for companies with top global shares in their fields, like ARM” – a British chip designer SoftBank acquired last year for 24 billion pounds ($31 billion).
Source: Nikkei Asian Review
“It’s a large pool of money which means SoftBank cannot do small deals. Horizontally ecommerce was ripe for consolidation but there are not many categories of scale which one can buy into. Also, what SoftBank has realised now is the fact that India is not an easy market; it needs capacity creation, building supply chains, distribution channels, etc. So, one has to sign up for a longer journey.”
–Trifecta Capital founder Rahul Khanna
Source: Economic Times
“While SoftBank has a fantastic track record, its prior private equity initiative, SoftBank Capital, has been basically shut, and we are not inspired by Vision Fund’s investments to date.”
–Peter Milliken, analyst at Deutsche Securities
Source: Financial Times
“First and foremost, who is guaranteeing the coupon and principal on the preferred? The idea is that if the portfolio performs badly then investors will get a coupon and their principal on the preferred. But from the announcement nobody is guaranteeing that. That means that if the fund loses all of its money, then the preferred units are worthless. This is a serious risk as we shall see.”
–Sabah Al Binali, investor & former founding CEO/CIO of Saffar Capital
Source: The National
“As the exit gets prolonged, the likelihood that early investors get diluted or boxed out goes up,’’ says Semil Shah, a general partner at the early stage investment firm Haystack. “And so a lot of investors, even some very good institutional investors, may not be able to protect their positions.”
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