THE KINGMAKER’S PLAYBOOK
Good morning, Term Sheet readers.
At Fortune’s Brainstorm Tech conference yesterday, two SoftBank investors sat down to discuss the mega-fund’s aggressive investment strategy. Here’s my full recap of the session:
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 invest out of 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."
Uber CEO Dara Khosrowshahi also weighed in earlier this year 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, all right?"
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 that has 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.
The 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.”
THE LATEST FROM FORTUNE...
• Slack Just Acquired Its 3rd Company In a Quest to Broaden Its Product (by Jonathan Vanian)
• Here's Why the EU Just Hit Google With a Record $5 Billion Antitrust Fine (by David Meyer)
• How Companies Can Safeguard User Privacy in the Data Era (by Alan Murray)
• Why China Will Soon Challenge Silicon Valley (by Brian O’Keefe)
• Mantis Vision, an Israel-based provider of advanced technology for 3D volumetric acquisition and scanning technologies, raised $55 million in Series D funding. Samsung Catalyst Fund and Luenmei Quantum Co. co-led the round.
• Fastly, a San Francisco-base edge cloud platform, raised $40 million in funding. Deutsche Telekom Capital Partners led the round, and was joined by investors including Sozo Ventures and Swisscom Ventures.
• Framebridge, a Washington D.C.-based provider of online custom framing services, raised $30 million in Series C funding. T. Rowe Price Associates, Inc led the round, and was joined by investors including SWaN & Legend Venture Partners, Revolution Ventures, and New Enterprise Associates.
• Polares Medical SA, a Palo Alto, Calif.-based medical tech company, raised $25 million in funding. Decheng Capital led the round, and was joined by investors including Endeavour Vision, IDO Investments, Earlybird Venture Capital and Wellington Partners.
• Verodin, a McLean, Va.-based company that validates the effectiveness of cybersecurity controls, raised $21 million in Series B funding. TenEleven Ventures and Bessemer Venture Partners led the round, and was joined by investors including Capital One Growth Ventures and Citi Ventures.
• Peerspace Inc, a San Francisco-based self-serve online booking tool for event spaces, raised $16 million in funding. GV led the round, and was joined by investors including Foundation Capital and Red Bridge Partners.
• Pocket.watch, a kids media brand, raised $15 million in Series B funding. Viacom led the round, and was joined by investors including Greycroft’s Tracker fund and UTA Ventures.
• Toka, an Israel-based cyber capacity-building company, raised $12.5 million in seed funding. Investors include Andreessen Horowitz, Dell Technologies Capital, Entrée Capital, Launch Capital and Ray Rothrock, CEO of cyber analytics firm RedSeal.
• Blast, a company that helps gamers save and earn money, raised $12 million in seed funding. Investors include Tony Robbins, CreditEase and RX3.
• TVision Insights, a Boston-based television attention measurement company, raised $11.5 million in funding. Accomplice and Jump Capital led the round, and were joined by investors including Luke McGuinness.
• CyberMDX, a New York-based healthcare cybersecurity provider, raised $10 million in Series A funding. Pitango Venture Capital led the round, and was joined by investors including OurCrowd Qure.
• Service Fusion, a field service management software provider, raised $10 million in Series A funding. Investors include Five Elms Capital.
• Get Spiffy Inc, a Durham, N.C.-based on-demand car care, technology and services company, raised $9 million in funding. Bull City Venture Partners led the round.
• Klang Games, a Berlin-based game development studio, raised $8.95 million in Series A funding. Northzone led the round.
• Mosa Meat, a Netherlands-based cultured meat startup, raised 7.5 million euros ($8.7 million) in funding. M Ventures and Bell Food Group led the round, and were joined by investors including Glass Wall Syndicate.
• Standard Cognition, a Palo Alto, Calif.-based developer of a checkout free AI shopping system for the retail industry, raised $5.5 million in funding. Investors include CRV.
• Kindly Care, a San Francisco-based elder care marketplace, raised $5.4 million in Series A funding. Javelin Venture Partners led the round, and was joined by investors including MHS Capital and Jackson Square Ventures.
• FRVR, a Malta-based HTML5 games publisher of games for chat and post-app store platforms, raised $3 million in seed funding. Investors include Accel and Makers Fund.
• Perch, a New York-based platform for interactive retail marketing, raised more than $1.7 million in seed funding. Investors include The Visuality Corporation and Corigin Ventures.
HEALTH AND LIFE SCIENCES DEALS
• Lygos, Inc, an Emeryville, Calif.-based biotechnology company focused on creating new biology based products, raised $15.5 million in Series B funding. IA Ventures and First Round Capital co-led the round, and were joined by investors including Y Combinator Continuity Fund and OS Fund.
PRIVATE EQUITY DEALS
• Genstar Capital agreed to buy a majority of Aretec Group Inc, holding company of Cetera Financial Group, an El Segundo, Calif.-based network of nearly 8,000 financial advisers. Financial terms weren’t disclosed.
• Mayfair Equity Partners acquired a majority stake in Pixomondo, a Los Angeles-based visual effects and digital media company. The deal values Pixomondo at $65 million.
• BC Partners agreed to recapitalize Navex Global, a Portland, Oregon-based provider of governance, risk management and compliance software. Financial terms weren't disclosed.
• Rubius Therapeutics, a Cambridge, Mass.-based biotech creating therapies based on red blood cells, raised $241 million in an offering of 10.5 million shares priced at $23, an upsized IPO above its $20 to $22 range. It has yet to post a revenue. Flagship Pioneering (57.3%) backs the firm. J.P. Morgan, Morgan Stanley, Jefferies, and Leerink Partners are underwriters. It plans to list on the Nasdaq as “RUBY.” Read more.
• Crinetics Pharmaceuticals, a San Diego, Calif.-based pharmaceutical firm, raised $120 milllion in an IPO of 6 million shares at $17, an upsized IPO within its $15 to $17 range. It posted grant revenues of $2 million in 2017. Vivo Capital (20% pre-offering), 5AM Ventures (19.7%), and Versant Ventures (19.7%) back the firm. J.P. Morgan, Leerink Partners, and Piper Jaffray are the joint bookrunners on the deal. It plans to list on the Nasdaq as “CRNX.” Read more.
• Ra Medical Systems, a Carlsbad, Calif.-based excimer lamser maker, filed for an $86 million IPO. The company posted revenue of $5.9 million in 2017. It plans to list on the NYSE as “RMED.” Piper Jaffray and Cantor Fitzgerald bookrunners in the deal. Read more.
• Pacific City Financial, the Los Angeles-based banking holding company, filed for a $50 million IPO. It posted $1.4 billion in assets. Keefe Bruyette Woods, Raymond James, and Sandler O'Neill bookrunners. It plans to list on the Nasdaq as “PCB.” Read more.
• Genstar Capital acquired CRF Health, a Plymouth Meeting, Penn.-based provider of eCOA and eConsent solutions for the life sciences industry. As part of the transaction, CRF will be combined with Bracket, a provider of software and technology-enabled solutions utilized in clinical trials. The seller was Vitruvian Partners.
• Equistone Partners Europe agreed to sell a majority stake in Caseking, a Germany-based supplier of PC gaming, e-sports, and tech products. Financial terms weren't disclosed.
FIRMS + FUNDS
• Greycroft, a New York-based venture capital firm, raised $250 million for its fund, Greycroft V.
• Jayni Shah joined Accomplice as a principal. She was previously at Menlo Ventures.
• Trinity Hunt Partners promoted Mike Steindorf and Blake Apel to partner.
• Gene Nogi joined Guidepost Growth Equity as a principal. Nogi was previously at Symmetric Capital.