7 ms·

SoftBank’s debt obsession

143 points by devy 8y ago

polskibus 8y ago
I wonder how are the downside-protecting elements and that unusual debt based financing structure affecting Uber and other large companies that SoftBank invests in. Is it possible that Uber collapses because of the 7% yearly coupon that SoftBank fund must produce ?
- kenneth 8y ago
  There is no risk of SoftBank's financial situation causing a collapse at one of the companies in which they hold a minority stake. The worst that could happen is they don't fund Uber the next time they need funding.
  - polskibus 8y ago
    That would depend on the term sheet, wouldn't it? 7% guaranteed yearly return may require unusual conditions on the investment side.
    - andrestan 8y ago
      Sure, that's possible but then you're just dealing with relatively blind speculation. I would assume there's no issues on the investment side unless there's strong reason to believe there is.
      - _jal 8y ago
        The article offers one reason to wonder: > [...] its term sheets — from what I hear — are heavily laden with economic terms that give SoftBank huge downside protection. How much weight you want to give that, well.
    - josgala 8y ago
      My guess would be generous liquidation preference and possibility to force IPO or liquidation event.
  - whatok 8y ago
    There's no chance that a collapse is immediately caused but if SOFTBK reaches a point where they closed off from capital markets, one of their best ways to raise cash is to sell their stakes in some company. I don't think it could happen with Uber just given the ownership breakdown but it could absolutely happen with another one of their stakes.
soared 8y ago
// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you could stay solvent longer than the market can remain irrational, so you're operating with very little risk. (Ignoring all the difficulties in investing that much, etc) Maybe SoftBank likes debt because even if they have no where to invest they'd still make $2B/year. EDIT: This isn't a serious comment, literally just throwing numbers in the air for fun. I know very little about investing.
- josgala 8y ago
  Good point. I think also debt’s effect is the perfect alignment for their “last” stage investing where risk and return are lower.
- loeber 8y ago
  > Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. This is totally untrue. Volatility in the short term -- one serious year down -- can sink you. No sane actor treats S&P's average rate of return as the risk-free rate.
  - flyinglizard 8y ago
    I was under the impression fund money is typically locked for around 10 years or so.
    - jldugger 8y ago
      Even the 10 year rate of return has variance. The risk-free rate of return for 10 years should pretty much be 10 year TIPS bonds.
  - soared 8y ago
    I don't know more than the basics, my thought was if you pocket $2b/year and invest it, you have $13B+ in 10 years (plus your own $28b you've invested that I didn't include). So $40B to whether a storm every 10 years seems reasonable.
smallgovt 8y ago
Does anyone know if any of the term sheets for these $1 billion+ deals have ever been made public? I'm really curious what the ins and outs are. Alternatively, any accurate data on what market terms are for these humongous rounds?
pkaler 8y ago
Note that Masayoshi Son has the distinction of losing the most money in history when he lost approximately $70 billion during the dotcom crash. He still has a net worth of $23 billion. Win big. Lose big. https://en.wikipedia.org/wiki/Masayoshi_Son https://en.wikipedia.org/wiki/Masayoshi_Son
- lostgame 8y ago
  Here's an ArsTechnica article with more specifics: https://arstechnica.com/information-technology/2012/10/how-sprints-new-boss-lost-70-billion-of-his-own-cash-and-still-stayed-rich/ https://arstechnica.com/information-technology/2012/10/how-s...
samstave 8y ago
There has been a lot of talk (and speculation) in the past regarding Softbank being 1. the avenue for Saudi Investment of their (est.) $Trillion++ as the hedge against oil's future and 2. The apac version of HSBC/DeutscheBank laundering schemes. Anyone have any speculation on the veracity of these rumors? Basically, WRT the debt risks that Softbank is taking, it suggests that they don't care about the risks, because they need to launder+invest the monies they can regardless as quickly and with as much volume as possible to legitimize and profit...
- ThrustVectoring 8y ago
  Taking massive risks is the correct play anyhow when massive failure loses other people's money. If the fund collapses to zero, it's just as bad for Softbank as if it collapses to the outstanding debt amounts. Meanwhile, if the fund randomly does better, Softbank collects 100% of the upside.
- jbhatab 8y ago
  I'd like to learn more about this and their motives. It'd be a little alarming if the US government was the top investor in the top vc firm buying up massive stakes of top SV companies. But maybe im unaware of how much investments America and other countries make like this.
  - JBReefer 8y ago
    I don't know if the government does, but plenty of individual states have investment funds or pension funds that do VC work. Apprenda, my old employer, was partially backed by the a New York State pension fund
gammateam 8y ago
The article plays on the cultural anathema to the word debt in the following ways: It mentions specific interest rates only once, which are paid to a subset of investors in the vision fund. It briefly clarifies how none of this is an insane level of debt, just a large number. It then spends the rest of the article talking the existence of bonds and interest bearing securities, with no distinction of what they are except "hey look, a DEBT security" It mentions how it is as large as the public debt of a nation state, after qualifying the alarm with subsets of a subset of one of the entity's balance sheets. By this part of the article, we are actually talking about the Softbank entity's "operating basis", which was a big pivot away from what 2/3rd of the article was talking about which was the Vision Fund doing all the cool investments. Just.... be discerning. The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity. It is nice that investors get the opportunity to have exposure to the hottest deal flow on the planet, with an entity that can push for liquidity.
- soVeryTired 8y ago
  > The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity. Sorry, I don't understand your point at all. Why would the fund's structure affect its investment mandate?
  - gammateam 8y ago
    They aren't mutually inclusive aside from the fact that nobody does it, for several good reasons. The investment mandate is written on paper and has nothing to do with the fund's structure. Nobody makes investment mandates with funds that are structured that way, except Softbank. Shrug emoji. Typically an investment into a fund is done with shares which bear no interest. This means that no money is being pulled away from the fund while it invests in things which cannot be liquidated. Softbank is investing in things which cannot be liquidated, all while money is flowing out of the fund to a large portion of shareholders at 7% a year.
    - lquist 8y ago
baybal2 8y ago
Plainly and simple: Vision Fund is a giant LBO scheme for Saudi money. Any other interpretation does not make any sense financially. Vision fund is knee deep in SHORT TERM debt – thus, they have to make money fast. They look for stuff they can flip quickly, and "Pets.com style" companies are ideal targets for that.
- sonnyblarney 8y ago
  To be fair, the Saudis have so much money it's hard to place, and therefore have to accept riskier terms. So maybe this is realistically the best they could do. And so Softbank can get away with better terms.
  - verbify 8y ago
    I've never understood that argument. Can't they just sink more money into the stock market?
    - baybal2 8y ago
      They want it on better terms, and have access to companies not on stock markets including all those pets.coms
    - sonnyblarney 8y ago
      Supply and Demand. More demand is better terms for stock sellers, i.e. companies. And their investing would probably completely skew the market. So it's hard. Investing directly might put them at risk of some kind of oversight as well. And they already have a lot tied up in those kinds of investments anyhow. They own a lot of real estate around the world as well. It's hard to find places to park that amount of money esp. if there are political considerations. Nobody is worried about taking money from the Norwegians ...
      - verbify 8y ago
        But there's more than one stock market - there are so many around the world, surely them buying couldn't make that much of an impact?
synaesthesisx 8y ago
Is there any public, comprehensive list of SoftBank-funded startups available?
- striking 8y ago
  You can use Crunchbase's search functionality, but it costs money. No idea how comprehensive it is.
- dharma1 8y ago
  https://www.recode.net/2018/2/5/16974032/this-is-where-chart-softbank-vision-fund-masayoshi-son-venture-capital https://www.recode.net/2018/2/5/16974032/this-is-where-chart...
- dforrestwilson 8y ago
  https://pitchbook.com/news/articles/visualizing-softbanks-epic-reach https://pitchbook.com/news/articles/visualizing-softbanks-ep...
laobagua 8y ago
If you hate someone, take their money and run, I guess?
teslaberry 8y ago
the japanese have an absolutely horrible track record of investing in overpriced risky foreign investments in the west. the chinese are not repeating the japanese mistake in the same way, bit in a different one...
sytelus 8y ago
Virtually all companies including GOOG, MSFT, FB take on same amount of debt as their cash on hand. The thing is that even at 5-7% interest rate, it is fairly easy to find use of money that easily pays off interest and leaves money in hand. So if you have X dollars, you borrow again it to get another $X. Your net revenue would typically increases by billion or two dollars.

143 points by devy 8y ago

I wonder how are the downside-protecting elements and that unusual debt based financing structure affecting Uber and other large companies that SoftBank invests in. Is it possible that Uber collapses because of the 7% yearly coupon that SoftBank fund must produce ?

kenneth 8y ago
There is no risk of SoftBank's financial situation causing a collapse at one of the companies in which they hold a minority stake. The worst that could happen is they don't fund Uber the next time they need funding.
- polskibus 8y ago
  That would depend on the term sheet, wouldn't it? 7% guaranteed yearly return may require unusual conditions on the investment side.
  - andrestan 8y ago
    Sure, that's possible but then you're just dealing with relatively blind speculation. I would assume there's no issues on the investment side unless there's strong reason to believe there is.
    - _jal 8y ago
      The article offers one reason to wonder: > [...] its term sheets — from what I hear — are heavily laden with economic terms that give SoftBank huge downside protection. How much weight you want to give that, well.
  - josgala 8y ago
    My guess would be generous liquidation preference and possibility to force IPO or liquidation event.
- whatok 8y ago
  There's no chance that a collapse is immediately caused but if SOFTBK reaches a point where they closed off from capital markets, one of their best ways to raise cash is to sell their stakes in some company. I don't think it could happen with Uber just given the ownership breakdown but it could absolutely happen with another one of their stakes.

soared 8y ago

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you could stay solvent longer than the market can remain irrational, so you're operating with very little risk. (Ignoring all the difficulties in investing that much, etc) Maybe SoftBank likes debt because even if they have no where to invest they'd still make $2B/year. EDIT: This isn't a serious comment, literally just throwing numbers in the air for fun. I know very little about investing.

josgala 8y ago
Good point. I think also debt’s effect is the perfect alignment for their “last” stage investing where risk and return are lower.
loeber 8y ago
> Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. This is totally untrue. Volatility in the short term -- one serious year down -- can sink you. No sane actor treats S&P's average rate of return as the risk-free rate.
- flyinglizard 8y ago
  I was under the impression fund money is typically locked for around 10 years or so.
  - jldugger 8y ago
    Even the 10 year rate of return has variance. The risk-free rate of return for 10 years should pretty much be 10 year TIPS bonds.
- soared 8y ago
  I don't know more than the basics, my thought was if you pocket $2b/year and invest it, you have $13B+ in 10 years (plus your own $28b you've invested that I didn't include). So $40B to whether a storm every 10 years seems reasonable.

smallgovt 8y ago

Does anyone know if any of the term sheets for these $1 billion+ deals have ever been made public? I'm really curious what the ins and outs are. Alternatively, any accurate data on what market terms are for these humongous rounds?

pkaler 8y ago

Note that Masayoshi Son has the distinction of losing the most money in history when he lost approximately $70 billion during the dotcom crash. He still has a net worth of $23 billion. Win big. Lose big. https://en.wikipedia.org/wiki/Masayoshi_Son https://en.wikipedia.org/wiki/Masayoshi_Son

lostgame 8y ago
Here's an ArsTechnica article with more specifics: https://arstechnica.com/information-technology/2012/10/how-sprints-new-boss-lost-70-billion-of-his-own-cash-and-still-stayed-rich/ https://arstechnica.com/information-technology/2012/10/how-s...

samstave 8y ago

There has been a lot of talk (and speculation) in the past regarding Softbank being 1. the avenue for Saudi Investment of their (est.) $Trillion++ as the hedge against oil's future and 2. The apac version of HSBC/DeutscheBank laundering schemes. Anyone have any speculation on the veracity of these rumors? Basically, WRT the debt risks that Softbank is taking, it suggests that they don't care about the risks, because they need to launder+invest the monies they can regardless as quickly and with as much volume as possible to legitimize and profit...

ThrustVectoring 8y ago
Taking massive risks is the correct play anyhow when massive failure loses other people's money. If the fund collapses to zero, it's just as bad for Softbank as if it collapses to the outstanding debt amounts. Meanwhile, if the fund randomly does better, Softbank collects 100% of the upside.
jbhatab 8y ago
I'd like to learn more about this and their motives. It'd be a little alarming if the US government was the top investor in the top vc firm buying up massive stakes of top SV companies. But maybe im unaware of how much investments America and other countries make like this.
- JBReefer 8y ago
  I don't know if the government does, but plenty of individual states have investment funds or pension funds that do VC work. Apprenda, my old employer, was partially backed by the a New York State pension fund

gammateam 8y ago

The article plays on the cultural anathema to the word debt in the following ways: It mentions specific interest rates only once, which are paid to a subset of investors in the vision fund. It briefly clarifies how none of this is an insane level of debt, just a large number. It then spends the rest of the article talking the existence of bonds and interest bearing securities, with no distinction of what they are except "hey look, a DEBT security" It mentions how it is as large as the public debt of a nation state, after qualifying the alarm with subsets of a subset of one of the entity's balance sheets. By this part of the article, we are actually talking about the Softbank entity's "operating basis", which was a big pivot away from what 2/3rd of the article was talking about which was the Vision Fund doing all the cool investments. Just.... be discerning. The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity. It is nice that investors get the opportunity to have exposure to the hottest deal flow on the planet, with an entity that can push for liquidity.

soVeryTired 8y ago
> The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity. Sorry, I don't understand your point at all. Why would the fund's structure affect its investment mandate?
- gammateam 8y ago
  They aren't mutually inclusive aside from the fact that nobody does it, for several good reasons. The investment mandate is written on paper and has nothing to do with the fund's structure. Nobody makes investment mandates with funds that are structured that way, except Softbank. Shrug emoji. Typically an investment into a fund is done with shares which bear no interest. This means that no money is being pulled away from the fund while it invests in things which cannot be liquidated. Softbank is investing in things which cannot be liquidated, all while money is flowing out of the fund to a large portion of shareholders at 7% a year.
  - lquist 8y ago

baybal2 8y ago

Plainly and simple: Vision Fund is a giant LBO scheme for Saudi money. Any other interpretation does not make any sense financially. Vision fund is knee deep in SHORT TERM debt – thus, they have to make money fast. They look for stuff they can flip quickly, and "Pets.com style" companies are ideal targets for that.

sonnyblarney 8y ago
To be fair, the Saudis have so much money it's hard to place, and therefore have to accept riskier terms. So maybe this is realistically the best they could do. And so Softbank can get away with better terms.
- verbify 8y ago
  I've never understood that argument. Can't they just sink more money into the stock market?
  - baybal2 8y ago
    They want it on better terms, and have access to companies not on stock markets including all those pets.coms
  - sonnyblarney 8y ago
    Supply and Demand. More demand is better terms for stock sellers, i.e. companies. And their investing would probably completely skew the market. So it's hard. Investing directly might put them at risk of some kind of oversight as well. And they already have a lot tied up in those kinds of investments anyhow. They own a lot of real estate around the world as well. It's hard to find places to park that amount of money esp. if there are political considerations. Nobody is worried about taking money from the Norwegians ...
    - verbify 8y ago
      But there's more than one stock market - there are so many around the world, surely them buying couldn't make that much of an impact?

synaesthesisx 8y ago

Is there any public, comprehensive list of SoftBank-funded startups available?

striking 8y ago
You can use Crunchbase's search functionality, but it costs money. No idea how comprehensive it is.
dharma1 8y ago
https://www.recode.net/2018/2/5/16974032/this-is-where-chart-softbank-vision-fund-masayoshi-son-venture-capital https://www.recode.net/2018/2/5/16974032/this-is-where-chart...
dforrestwilson 8y ago
https://pitchbook.com/news/articles/visualizing-softbanks-epic-reach https://pitchbook.com/news/articles/visualizing-softbanks-ep...

laobagua 8y ago

If you hate someone, take their money and run, I guess?

teslaberry 8y ago

the japanese have an absolutely horrible track record of investing in overpriced risky foreign investments in the west. the chinese are not repeating the japanese mistake in the same way, bit in a different one...

sytelus 8y ago

Virtually all companies including GOOG, MSFT, FB take on same amount of debt as their cash on hand. The thing is that even at 5-7% interest rate, it is fairly easy to find use of money that easily pays off interest and leaves money in hand. So if you have X dollars, you borrow again it to get another $X. Your net revenue would typically increases by billion or two dollars.