Masayoshi Son has significantly increased the pace of its investments in its startups this year, quintuple the number of companies in its Vision Fund 2 portfolio in less than nine months.
The founder of SoftBank Group Corp. closed 115 deals this year, according to Bloomberg calculations based on data released by the company. This is more than the combined number of deals made by the first Vision Fund since its launch in 2017, showing that Son remains confident in his ability to invest despite mistakes with office-sharing service WeWork and financier Greensill.
The faster pace of deal making is sure to raise questions about whether His risks similar missteps, especially as a string of high-profile departures is wearing out the best talent at the Vision Fund. Seven managing partners have left since March of last year, and last week Deep Nishar, the only senior managing partner and principal authority on AI, said he would be leaving by the end of the year. .
“Vision Fund’s track record wasn’t great initially, and now they’re doing more with fewer people,” said Amir Anvarzadeh, senior strategist at Asymmetric Advisors, who recommends short selling SoftBank shares. “The potential failure rates are bound to be higher, but you can imagine Son just being cautious and playing the percentages.”
The total workforce at SoftBank Investment Advisers, which oversees the two Vision funds, has grown from around 500 people at the start of last year to around 400 now, according to a person familiar with the matter. Several older people who left became frustrated with Son’s dominant influence, which left them with little real authority, people familiar with the matter said. The Vision Fund’s compensation structure also caused tensions, with executives being limited in their ability to capitalize on the successful startups they presented to Son, people said.
A spokesperson for the Vision Fund declined to comment on the story.
Staff cuts last year focused on reducing Vision Fund’s support and back-office staff, according to another person familiar with the matter. The organization has also hired three managing partners since last March and has added 40 more investors since early April for a total of 145, the person said, asking not to be identified as the details are private.
SoftBank is stepping up its investments just as venture capital activity is reaching its peak. Funding for startups hit a world record of $ 156 billion in the second quarter, according to CB Insights. Son, meanwhile, increased the amount allocated to Vision Fund 2 from $ 10 billion at the start of the year to $ 40 billion in June. The billionaire also plans to invest up to $ 2.6 billion of his own money in the fund.
“One concern is that there is a lot of competition from other investors and valuations are already feeling inflated, which means lower returns for SoftBank down the road,” said Kirk Boodry, analyst at Redex. Research in Tokyo. “Another concern relates to their decision-making process. When you invest in 30 or 40 companies in such a short time frame, due diligence is bound to suffer. “
SoftBank is accelerating in part because of growing competition from venture capital firms, one of the people said. The company was taking up to a month to make investment decisions, hiring large consulting firms like McKinsey & Co., Bain & Co., and Boston Consulting Group Inc. to help with due diligence, the person said.
SoftBank now has a maximum of two weeks and generally does less due diligence, reflecting the smaller transaction size. The founders repeatedly requested a response the next day, prompting SoftBank to call an emergency meeting of its investment committee, the person said.
Its made much smaller bets on a particular company. Vision Fund 2’s average funding round is around $ 330 million, or about half the average investment size of the First Vision Fund, according to Bloomberg calculations based on data from Crunchbase.
The first fund’s transactions have often reached billions – over $ 10 billion in Didi Chuxing, $ 7.7 billion in Uber Technologies Inc. and $ 4.4 billion in WeWork. Vision Fund 2 has only made three investments of over $ 1 billion, including a $ 1.3 billion bet on Chinese company KE Holdings Inc., which operates online real estate service Beike.
In addition to the two Vision funds, SoftBank has set up a $ 5 billion Latin American fund that has invested in 48 companies since its inception in March 2019. Its earlier this month increased dedicated capital for the region of an additional $ 3 billion.
During the last earnings briefing in August, Son said SoftBank’s portfolio totaled more than 300 companies in the three different funds. The investment strategy remains the same, he said, supporting startups that rely on artificial intelligence to disrupt traditional businesses.
“I sincerely believe that AI will revolutionize all industries,” Son said at an earnings briefing in August. “As an investor in this revolutionary space over the past four years, we are in full swing. “
SoftBank began strengthening its Vision Fund staff when Son planned to raise a massive new fund every few years. It was originally intended to raise $ 108 billion for Vision Fund 2 from outside investors, including Apple Inc. and Microsoft Corp. Those plans fell apart after WeWork’s collapse in late 2019.
Vision Fund 2 is still by far the largest actively investing venture capital entity in the world. The fund had already spent $ 19.5 billion at the end of June, or about half of its allocated capital. That’s more than the $ 19.2 billion Sequoia Capital raised in more than 30 different funds and $ 18.2 billion among Andreessen Horowitz’s 20 funds, according to data from Crunchbase. Tiger Global Management, the closest rival, has raised a total of $ 23.4 billion from 8 funds.
While the first fund had a strong focus on carpooling and office sharing, Vision Fund 2 supported a wider range of businesses. In its portfolio of private companies, mainstream startups accounted for 22% of its investments at the end of June, with the business and logistics segments receiving around 20% each. Fintech, which hardly caught the attention of VF1, held a 16% stake.
“It’s hard to imagine that Masa’s methodology has changed so much. And his affinity for entrepreneurs is something that has always worried investors, ”said Bodry. “The hope is that the Vision Fund is more seasoned now and can get through it.”
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