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SoftBank Investors Explain the Mega-Fund’s Aggressive Investment Strategy

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Polina Marinova
Polina Marinova
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By
Polina Marinova
Polina Marinova
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July 17, 2018, 2:18 PM ET
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If money was not a constraint, what would you do differently in the next five to 10 years?

That’s the question Softbank’s investment professionals pose to CEOs before they write a check from their mammoth $100 billion Vision Fund. The Japanese behemoth has poured billions into some of business’ biggest deals, including Uber, ARM Holdings, Nvidia, WeWork, DoorDash, GM Cruise, Katerra, and Wag.

“Our playbook has been to take meaningful minority stakes and bring both capital, counsel, and connections to our entrepreneurs and introduce them to their sister companies inside of the broader SoftBank ecosystem,” said SoftBank managing partner Jeffrey Housenbold at Fortune’s Brainstorm Tech Conference in Aspen, Colo., on Tuesday.

SoftBank, which is led by Masayoshi Son, has a $100 million minimum investment requirement. Its overarching strategy is to identify a market leader, pour hundreds of millions of dollars in it, and remove the constraint of capital. Once a deal is identified, several of its 80 investment professionals sit down with the company’s management team, discuss the opportunity, and “essentially re-write their business plan.”

“We may delay profitability, but we’re always keen to understand what the unit economics are,” Housenbold said. “We have a phrase that says, ’Nail it, then scale it.’ So we’re not just allowing them to spend money without an end goal.”

As Fortune has noted before, money matters. In a recent feature on SoftBank’s Masayoshi Son, Grab’s CEO Anthony Tan recalls the time when the Japanese billionaire was considering investing in his startup. Son reportedly said, “Anthony-san, you take my money. It’s good for you. It’s good for me. If you don’t take my money, not so good for you.”

Earlier this year, Uber CEO Dara Khosrowshahi also weighed in on why CEOs have no choice but to accept an investment from SoftBank. “Rather than having their capital cannon facing me, I’d rather have their capital cannon behind me,” he said.

In other words, capital itself can be a prime differentiator. In today’s world, even a really well-funded startup company will have trouble competing when it’s up against a rival backed by a mega-fund like the Vision Fund.

At Brainstorm Tech, Housenbold explained that there are certain industries where “winner takes most.” So early on in the formation of an industry, the company with more capital can attract more talent, acquire smaller players, market aggressively, and capture customers. In those instances, he says, capital can be a differentiator.

“So there are certain industries where writing a bigger check helps increase the likelihood of success,” Housenbold said.

This strategy is often critiqued because bombshell amounts can inflate already-inflated tech valuations, while also pumping hundreds of millions of dollars into startups that don’t necessarily need it.

Take Wag, the dog-walking app, for example. The company was originally looking to raise $100 million in its latest round, but that amount quickly jumped to $300 million once Softbank expressed interest. With a player like Softbank in the ecosystem, tech founders are asking themselves, “Why not raise more?”

SoftBank’s consumer internet investor Lydia Jett put it succinctly: “We’re investing in late-stage assets. These are proven teams with proven operators. How do we help them expand products and expand geographies? It does lead to a world where we can put more capital to work in ways we don’t think are irresponsible because of the big opportunities ahead of us.”

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