How Japan’s SoftBank and Its $100 Billion Vision Fund Became the Biggest Startup Story of 2018
From Uber and WeWork to Saudi Arabia, SoftBank founder Masayoshi Son had an outsized influence over the startup world in 2018.
Editor’s note: Inc. magazine will announce its pick for Company of the Year on Monday, December 10. Here, we spotlight a contender for the title in 2018.
Uber. WeWork. Saudi Arabia. The biggest startup stories in 2018 shared one long and influential thread: Japanese conglomerate SoftBank, its $100 billion tech investment fund, and founder Masayoshi Son.
SoftBank, which Son founded in 1981 as a PC software company, now runs a large Japanese mobile phone carrier and owns Sprint. But in the past couple of years, the company has mostly made headlines for bankrolling high-profile (and outrageously-funded) startups. Now SoftBank’s Vision Fund, formally established last year, is the largest technology investment fund in the world. Its investments, which generally start at $100 million, include Uber, WeWork, Slack, online lender SoFi, food-delivery startup DoorDash, e-commerce startup Brandless, vertical farmer Plenty, and even robot-pizza maker Zume.
The Vision Fund’s size, scope, and financial backing means that SoftBank spent 2018 rattling the traditional venture capital industry, raising questions about the long-term independent viability of money-losing tech companies — and finding itself at the center of a geopolitical mess over Saudi Arabia’s financial ties to U.S. businesses.
A Big Vision, Almost Interrupted
The Vision Fund is backed by several prominent investors, including Apple and the government of Abu Dhabi, but its largest financial partner is Saudi Arabia’s sovereign wealth fund. The country’s government, under crown prince and de facto ruler Mohammed bin Salman, contributed 45 percent of the $100 billion, and in October announced plans to put another $45 billion into a second Vision Fund.
So by mid-October, when Saudi Arabia and its crown prince became implicated in the murder of Saudi dissident and Washington Post columnist Jamal Khashoggi, SoftBank and Son caught a lot of the fallout. International CEOs, including Son and Uber’s Dara Khosrowshahi, eventually pulled out of a major investment conference the crown prince had organized in Riyadh. Startups that had taken money directly from Saudi Arabia or from SoftBank’s investment fund faced increased scrutiny over their ties to the Kingdom.
Yet very few companies permanently cut ties with Saudi Arabia over Khashoggi’s killing, and by early November, Son was explaining his plans to stand by his financial partner.
“We want to see those responsible held accountable,” Son said during a news conference in early November. “At the same time, we have also accepted responsibility to the people of Saudi Arabia, an obligation we take quite seriously to help them manage their financial resources and diversify their economy.”
A SoftBank spokesperson adds that the company continues to monitor the fallout regarding Saudi Arabia, including any actions taken by the U.S. government, and will continue to do so.
The ‘Warren Buffett’ of Tech
The Saudi scandal was the latest, if not the most comfortable, example of SoftBank’s centrality to the tech industry — and the influence and reach of its founder, a longtime entrepreneur who’s often proclaimed his ambition to be the “Warren Buffett” of the tech industry. Son, 61, grew up ethnically Korean in Japan, where Koreans often face discrimination. He traveled to the United States at age 16, studied economics at the University of California at Berkeley, and returned to Japan to start building his empire.
“I thought of 40 different businesses I could start. It was like thinking of an invention,” Son told the Harvard Business Review in 1992. “Then I had about 25 success measures that I used to decide which idea to pursue. One success measure was that I should fall in love with a particular business for the next 50 years at least. Very often, people get excited for the first few years, and then, after they see the reality, they get tired of the business. I wanted to choose one that I would feel more and more excited about as the years passed.”
Son also quickly started making savvy, and eventually profitable, bets on promising young tech companies, including Alibaba and Yahoo. By 2000, he had become one of the world’s richest men — until the dot-com crisis struck, costing SoftBank 93 percent of its market value and Son personally $70 billion of his net worth, according to Bloomberg.
Yet the entrepreneur rebounded, in part thanks to a 2006 deal to buy Vodafone Japan and turn it into the country’s exclusive iPhone distributor. SoftBank is now planning to take its Japanese telco unit public, in a planned $21 billion IPO that would be the country’s largest-ever such offering.
Today, SoftBank’s other holdings include a majority stake in Sprint and investments in chipmaker Nvidia, Chinese ride-sharing company Didi Chuxing, and of course, Uber (where SoftBank this year became the company’s largest shareholder). In November, SoftBank put another $3 billion into co-working giant WeWork, valuing the New York company at about $45 billion. That’s in spite of shaky financials: Earlier in November, The Wall Street Journal reported that SoftBank is seeking a majority stake in WeWork, which lost $1.22 billion, on revenue of $1.25 billion, through the first nine months of this year. (A WeWork spokesman declined to comment.)
And SoftBank is continuing to spread around it sizeable investments, recently dropping $2 billion on Korean e-commerce startup Coupang.
More ‘Mega’ Funding Rounds
SoftBank’s investment behavior is having ripple effects beyond the companies in which it invests. Other venture capital firms, including Sequoia Capital, are starting to raise larger amounts of money to put into their portfolio companies. Meanwhile, prominent VC firm Kleiner Perkins Caufield & Byers in September split up, as its partners disagreed over whether to focus on small early-stage investments or to compete to invest larger amounts of money in later-stage startups.
An October report from Pitchbook and the National Venture Capital Association confirms SoftBank’s influence on the Silicon Valley ecosystem, projecting that VCs will invest more than $100 billion in 2018. That will top the already-record-high level of investment in 2017, when VCs invested more than $84 billion, according to Pitchbook and the NVCA. As those entities understated in their October report, this funding glut can be traced back to Masayoshi Son and his mega-deals: “Several traditional VCs have raised larger funds to compete in the mega-rounds with the SoftBanks of the world,” the report found, “seeing larger amounts of capital as a competitive advantage and opportunity to invest in the best companies.”