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Well since this is Hacker News one question that immediately pops in my mind: why does SoftBank invest so much money in existing companies, instead of doing som
by pm90 9y ago
Well since this is Hacker News one question that immediately pops in my mind: why does SoftBank invest so much money in existing companies, instead of doing something a la YCombinator? Get a panel of VC's, allow them to invest some of this money in new ideas and such... wouldn't that be a better investment than buying so much stock in existing companies?
I'm trying to understand what SoftBank's endgame is here...
- msh 9y agoIts lower risk.
- IBM 9y agoSoftBank has too much capital for something like YCombinator. It simply doesn't scale. Even the VC industry is a drop in the bucket compared to the broader PE industry.
- noodle 9y agoWhile your statements aren't wrong, there are other large companies that are doing this type of thing. AT&T for example is running incubators and is on the order of magnitude of size as SoftBank.
- IBM 9y agoLots of companies have corporate VC arms. The difference is they aren't investing anywhere near the amount SoftBank is. Their $100 billion tech fund is too big for the kind of deals that the typical VC invests in. It's pretty clear this is going to have various strategies. Lots of small investments in startups, buyouts like they did with ARM, and these minority stakes in public markets.
- mljoe 9y agoRight $100 billion dumped all at once into VC would basically destroy the whole ecosystem. The saying is VC can't work when there is too much gasoline (capital) and not enough fire (talent/innovation). Despite the headline successes, most VC firms fail.
- aianus 9y agoHonestly curious, has anyone ever tried giving $1 million to 4,000 moderately vetted wannabe entrepreneurs? Say, the entire graduating classes of Stanford, Berkeley, or MIT. How do we know it doesn't work?
- chrischen 9y agoI'd say most Stanford, Berkeley, or MIT grads can easily land a few hundred thousand dollars (which is honestly more than enough to produce something or test an idea) with any half-decent idea or half-decent ability to bull-shit. Most who fail do so because they didn't pass the passion bar to bull shit or push something out.
- IBM 9y agoThe limiting factor is the bandwidth of the people making the investment decisions. There's no way to manage a portfolio of that size and dedicate the amount of time you'd want to any one of them. Also, why give $1 million to 4000 startups when you can put more wood behind the arrow of your best ideas? The point of active management is to generate alpha, doing so requires superior analysis or some other "edge".
- AnimalMuppet 9y agoHow do you know what your "best ideas" are? And, are they better than the average of those 4000 startups? Are they better than the top 1% of those 4000 startups? It's not clear to me that, starting from here, NVidia is going to be a fast-growth company - especially not compared to a group of startups.
- outside1234 9y agoits possible they are using NVidia as a proxy for a bet on Machine Learning.
- clarky07 9y agoThis is a bet on AI and machine learning. Not video games. NVidia is currently the publicly traded company that best fits that narrative. If you think it will get big, this is the company you buy.
- noodle 9y ago> why does SoftBank invest so much money in existing companies, instead of doing something a la YCombinator? IIRC, Japan isn't particularly culturally friendly to startups. That probably surfaces itself in the leadership's business decisions.
- Razengan 9y ago> Japan isn't particularly culturally friendly to startups. It's quite the contrary. Japan, or at least its entertainment industry and pop culture, is full of entire franchises started by minor, independent artists and coders, aka doujins [0]: > amateur self-published works, including manga, novels, fan guides, art collections, music and video games. ... Of the $1.65 billion of the Otaku industry in 2007, doujin sales made up 48% ($792 million). [0] https://en.wikipedia.org/wiki/Dōjin https://en.wikipedia.org/wiki/Dōjin
- cthalupa 9y agoThat's a far cry from VC funded startups. There isn't a real equivalent to Silicon Valley, for example.
- Razengan 9y agoConversely, you could say the US has no real equivalent to the doujin scene. WHY is even a physical Silicon Valley still necessary? One could argue that the doujin way is a better launchpad for a wide variety of ideas than VC-funded startups: People, especially young people including many females, create something from the comfort of their bedrooms, without any pressure (like many software/game devs of the 1980s), other people enjoy and even improve their products, and if they get popular enough then big companies may turn them into proper franchises. Why doesn't the US foster that kind of environment more? Why does everything have to be a company with millions of dollars? In fact, most of the Western internet is actually hostile to young artists and developers..
- dragonwriter 9y ago
- hkmurakami 9y agoIirc his younger brother's company does something closer to YC.
- fnovd 9y agoIt gives them a large stake in a company that is both currently successful and in a position to be a leader in new markets (automotive and data centers were mentioned in the article). It's hard to imagine a scenario where Nvidia is out of business in the next 5 years and very easy to imagine one where they are applying their accrued chipmaking expertise to other areas for a marginal advantage.
- easilyBored 9y agoBecause they have a LOT of money. Like over $100,000,000,000 to invest https://www.bloomberg.com/news/articles/2017-05-20/japan-s-softbank-says-93-billion-committed-to-technology-fund https://www.bloomberg.com/news/articles/2017-05-20/japan-s-s... . They don't have time /resources to hand out $20k investments to the future Zuckenbergs and guide them through, so the invest in what seems like a sure thing.
- ethbro 9y agoTo elaborate on that a bit, I think your comment begs the question of "Well then why don't they fund 100 YCs and take the hit from a middleman?" To which the answer is probably "There aren't 100 YCs worth of good ideas + support resources / networking opportunities out there."
- dsr_ 9y agoIt might even be that there aren't 100 YCs worth of people good at making YC-style bets.
- ethbro 9y agoThat too! My initial idea was "There aren't enough startups out there to YC", which led me to "That's why YC tries to boost yield by enabling marginal startups to succeed via office hours and support", which led me to "But the system as a whole probably has limited resources suitable for support."
- microcolonel 9y agoMaybe they could invest in an existing accelerator.
- Iv 9y agoSoftbank's CEO has two, personal, areas of interest he is willing to bet a lot on: IoT and robotics. NVidia is a very competent hardware manufacturer and is investing a lot in deep learning. Softbank has telephony networks and robots manufacture. It does make some sense.
- agumonkey 9y agoAnd after ARM acquisition it's not out of place.
- hkmurakami 9y ago>NVidia is a very competent hardware manufacturer Aren't their fabs outsourced to TSMC?
- s0rce 9y agoYes, they design hardware, not sure I would call them a manufacturer.
- CyberDildonics 9y agoMy guess is that softbank primarily wants to get their money out of Yen. The Yen's future is extremely uncertain, Japan's government is 1 Quadrillion yen in debt.
- wang_li 9y ago>The Yen's future is extremely uncertain, Japan's government is 1 Quadrillion yen in debt. About $10 trillion USD.
- ekianjo 9y agoYup, but Japan does not have the military might of the US to ensure they remain a dominant country.
- hkmurakami 9y agoThis is from their $100B fund though, which has primarily non-Softbank LPs.
- deagle50 9y agoPart of their strategy is protection against a Yen devaluation and shifting their holdings to US and European assets before their purchasing power decreases. Same reason why the Chinese are buying up real estate in the US and Canada.
- JumpCrisscross 9y agoSource? I don't see why Saudi Arabia, Apple or Qualcomm are concerned about Japanese yen devaluation.
- WillPostForFood 9y agoThey aren't Japanese companies like SoftBank, so they don't need to be as concerned specifically with the yen. Though you can be sure that Apple or any large company with foreign cash flow actively manages currency risk.
- tormeh 9y ago>ou can be sure that Apple or any large company with foreign cash flow actively manages currency risk I'm highly doubtful. I bet Apple and other holders of huge wealth spread their wealth over many asset classes, with cash not being among them.
- kgwgk 9y agoOther assets apart from cash are affected by a currency devaluation. Starting with bonds denominated in that currency.
- deagle50 9y agoApple has raised prices in other countries multiple times over the last few years to counter a strong dollar.
- WillPostForFood 9y agoI think we mostly agree - what you describe is what I was meant when I said actively managing currency risk. Every sale in Japan for Apple is a pile of Yen (real or virtual), that needs to be dealt with, and just holding it brings a lot of risk. You move it, you buy options to hedge if you hold it, you buy stuff with it.
- dmitrygr 9y agoTo make sure they don't accidentally end up connected to such hits as juicero, Uber, theranos, uBeam, etc ?
- AnimalMuppet 9y agoBut it also makes sure that they don't end up connected to such hits as AirBnB, etc.
- bdcravens 9y agoPerhaps they only want to put their money in companies with a proven track record instead of playing the law of averages.
- danjoc 9y agoThat's now how modern capitalism works. You can't open a corner store, because someone is already on the corner running a store. You can't open one on the empty lot down the street, because that guy running the corner store took his profits and invested in zoning laws to prevent it. If you could, there would be a store there already. Finding an open opportunity is like finding a gold nugget. It just doesn't happen very often, and definitely not in places where people have combed for them for decades. The same applies with NVidia. You can't start a GPU company because they are the GPU Mafia. They'll run you out of business before you even get a foothold with patent suits, licensing fees, etc, etc, etc. That's why you have startup taxi companies literally breaking laws everywhere they go. Because the laws were, in part or entirely, set up to protect established interests. Softbank then, is working inside this system, from the standpoint of the Capitalist... the man with all the money. They're buying up corner stores, because in the long run, it is guaranteed to pay them back. Even if poorly run, it will pay off for years because of the lack of competition. Capitalism is set up to favor the owners of capital.
- mattmanser 9y agoSo, I indirectly know someone who just sold their printing company for around $60 million. Their printing company, not their 3D printing company.
- chronic940 9y agoTo counter your single data point, I do not know of a single person, personally, who sold a company for any amount of money. And I live in Sunnyvale.
- tehwebguy 9y agoWhat kind of printing, paper? T-shirts?
- Noughmad 9y ago60 million for a printing company? That must have been cheaper than buying individual cartridges.
- 9y ago
- softwank 9y agoDon't listen to the other posters. Softbank does have a VC arm. https://www.crunchbase.com/organization/softbank-capital#/entity https://www.crunchbase.com/organization/softbank-capital#/en...
- subterfudge44 9y ago> SoftBank's endgame is here... I don't think there is an endgame. Softbank simply wants to grow its wealth over time. > Instead of doing something a la YCombinator? YC is not scalable. After a big long process handful are selected who qualify for a small amount of investment and only handful of them succeed. At least by stage 1 hardly ~ $500M will be invested and Softbank has like $$$$$. Much better to wait and let YC do the filtering and once you see something is successful invest in them for a long term gain.
- polishTar 9y agoYou shouldn't favor one over the other. If it really was the case that high risk startups were being systemically under valued such that an investment into YCombinator companies lead to greater returns than other investments, other market participants would have likely already exploited/corrected it. This is often called the no arbitrage principle. If someone invests into large companies it might indicate they hold the opinion that it swung too far in the opposite direction and the market is now overvaluing small companies relative to the large. In this case SoftBank is specifically investing in Nvidia instead of a segment at large indicating they likely hold a very specific opinion. It probably wouldn't be correct to use this to say anything on their opinion to the value of something like YCombinator.
- aswanson 9y agoWhat makes you think Softbank has the expertise and vision to attract and grow good startup founders? How do you know that the level of capital they have can be efficiently put to work by them in that sector?
- PakG1 9y agoStartups are draft picks. Existing companies are free agents. Both can pan out, both can be busts. Draft picks can be first round draft picks or fourth round draft picks. Free agents can be expensive or cheap. It is what it is.