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I never understood the SoftBank investment strategy. It looks like they always invest in something big and popular, prepared to pay a premium price - often much

I never understood the SoftBank investment strategy. It looks like they always invest in something big and popular, prepared to pay a premium price - often much more than it makes sense, i.e. WeWork.

Retric 7y ago
I think the people running it are focusing on management fees over returns. As long as they don’t lose money they can skim quite a bit.
- umeshunni 7y ago
  But don't they need to show returns to their investors?
  - ngold 7y ago
    I imagine they just need to not lose too much. The whole thing is set up to buy everything for sale in case oil crashes.
    - hkmurakami 7y ago
      There's a reported annual returns benchmark they need to hit.
compsciphd 7y ago
per discussions with people in this space, they act like they have money burning a hole in their pocket. Compare to Buffet who will just accumulate cash if he doesn't feel he has a good place to put it.
- 9nGQluzmnq3M 7y ago
  The Vision Fund is $100 billion dollars, which is ludicrous by VC standards. Investing that sort of money sensibly, particularly if you limit yourself to IT startups (which historically don't need that much capital compared to, say, oil exploration or an iron ore mine), is not easy.
  - compsciphd 7y ago
    I think I read recently that buffet is sitting on an equivalent amount of cash, waiting for the right investment
    - eindiran 7y ago
      At least as recently as May 2017 that was true: https://www.cnbc.com/2017/05/05/warren-buffett-reveals-whats-holding-him-back-from-putting-berkshires-cash-to-work.html https://www.cnbc.com/2017/05/05/warren-buffett-reveals-whats...
      - dgacmu 7y ago
        Buffet is at 122B now: https://www.google.com/amp/s/markets.businessinsider.com/amp/news/warren-buffett-berkshire-hathaway-record-122-billion-cash-2019-8-1028416556 https://www.google.com/amp/s/markets.businessinsider.com/amp... But he invests differently - often buying entire, functioning companies.
        alexnewman 7y ago
        Warren holding cash is a statement on equity values IMHO. This is not financial advice.
    - deleted 7y ago
      [deleted]
    - sytelus 7y ago
      Every big player is sitting on approximately that much cash: MSFT, APPL, GOOG. There is probably literally trillion dollars lying around in mostly liquid assets trying to find better long term opportunity. I think the productivity in last decade had been amazing but no one knows where to invest all these extra earnings they have had.
    - skinnymuch 7y ago
      Buffett did lose billions on Kraft Heinz which we’re huge purchases costing tens of billions.
bobthepanda 7y ago
$100B is way too big of a fund to be able to reasonably deploy. But Saudi Arabia needs to invest in something; they're $45B of that $100B.
- skinnymuch 7y ago
  But WeWork seems like an overly stupid investment to make, no? Uber was a calculated risk. But WeWork?? They better hope they can sell some stock at IPO and WeWork’s stock doesn’t totally tank during the holding period. WeWork could pretty easily result in billions in losses.
  - empath75 7y ago
    WeWork just seems like outright fraud to me with a self-dealing CEO and with a lot of liabilities in the form of long term leases that they will never make a profit from.
    - thedudeabides5 7y ago
      Well if there's no inflation. Now, if we got some inflation, those leases would start to look pretty cheap. Then the debt turns into equity, viola! See lowering interest rates to 0 is fun.
      - joelx 7y ago
        This comment was downvoted for snark, but the point is accurate. Inflation could double rental prices and then all of Wework leases will be worth a lot.
        superwayne 7y ago
        Aren't leases usually inflation adjusted?
        piva00 7y ago
RootKitBeerCat 7y ago
The strategy of SoftBank and all long term investments is for the companies and products they invest in to blossom into big money producing engines; they don’t care about short term time horizons, so much as picking 10-20% of their investments that will 10-10000x their initial investments over the next 20-50 years.
- davidivadavid 7y ago
  But there's no way they're going to see those return on late stage investments? For Uber to 10x from their current market cap, they'd have to be worth ~$700 bn. That seems hard to achieve, let alone multiples in higher orders of magnitude.
- hkmurakami 7y ago
  You have the stages and return profiles completely mixed up here. What your day is true for early stage. Not the case for late stage
  - pishpash 7y ago
    Was Apple late stage enough in 2000?
    - sushid 7y ago
      Your example is an extreme outlier.
      - gingabriska 7y ago
        Yea the unicorns are always outliers. If one of the company actually ends up being Apple, they'll win.
paxys 7y ago
They are a late stage investor, so their bets are expected to be expensive. They are also not looking for quick returns, but rather counting on their portfolio companies to substantially change the industry that they operate in over the long term. i.e. Uber for driverless cars, semis, logistics, shipping. WeWork for pulling off spaces-as-a-service globally (for offices, apartments, schools, lifestyle services). Slack being able to shift enterprise communication and collaboration away from email and Microsoft products. And while their top 2-3 investments get all the PR as expected, they are in a ton of different sectors and countries - https://visionfund.com/portfolio https://visionfund.com/portfolio.
- cruano 7y ago
  "A corporate group growing for the next 300 years" I think that says it all
auspex 7y ago
I think the biggest thing you are missing is that Softbank gets a guaranteed return on IPO. If their shares are < agreed_return Uber issues them shares to make up the difference. But after the IPO they are on their own. So if the price drops or they hold a huge position it can be a problem.
streetcat1 7y ago
Its called momentum investing.
onetimemanytime 7y ago
That's the only way one can deploy hundreds of billions.
whazor 7y ago
Banks have tons of offices which they want to lease out (property). Therefore investment could be as simple as lending properties.
tim333 7y ago
From their blurb: >The SoftBank Group has grown by anticipating paradigm shifts in technology and building businesses to take advantage of the next era. They kind of look where the market is shifting eg ride sharing, co-working and try to invest in the leader eg. Uber or WeWork. I guess the theory is as the world shifts that way they will make profits. Time will tell with Uber and We. They did well with AliBaba and Yahoo in the past.
xivzgrev 7y ago
I worked for a company that took SoftBank money, though I joined after the investment. As someone else mentioned they are later stage investors, and do look for potentially transformative things. In order to get in they offer large investments and ridiculous valuations, which appeal to entrepeneur’s egos. The dark side of accepting money at high valuations is The Next Round. If you aren’t profitable by the next time you need money, you better have shown enough growth to not only match the SoftBank investment but to go beyond it to a reasonable investor. Otherwise you don’t have a growth story and investors turn their noses up (or offer shitty down-round terms). So in a way SoftBank can (and has) torpedo its own investments by its entry strategy and human greed. In the case of my company they eventually sold, but only after a complete pivot and focus on a different market, and ultimately at a lower price.

I never understood the SoftBank investment strategy. It looks like they always invest in something big and popular, prepared to pay a premium price - often much more than it makes sense, i.e. WeWork.

Retric 7y ago

I think the people running it are focusing on management fees over returns. As long as they don’t lose money they can skim quite a bit.

umeshunni 7y ago
But don't they need to show returns to their investors?
- ngold 7y ago
  I imagine they just need to not lose too much. The whole thing is set up to buy everything for sale in case oil crashes.
  - hkmurakami 7y ago
    There's a reported annual returns benchmark they need to hit.

compsciphd 7y ago

per discussions with people in this space, they act like they have money burning a hole in their pocket. Compare to Buffet who will just accumulate cash if he doesn't feel he has a good place to put it.

9nGQluzmnq3M 7y ago
The Vision Fund is $100 billion dollars, which is ludicrous by VC standards. Investing that sort of money sensibly, particularly if you limit yourself to IT startups (which historically don't need that much capital compared to, say, oil exploration or an iron ore mine), is not easy.
- compsciphd 7y ago
  I think I read recently that buffet is sitting on an equivalent amount of cash, waiting for the right investment
  - eindiran 7y ago
    At least as recently as May 2017 that was true: https://www.cnbc.com/2017/05/05/warren-buffett-reveals-whats-holding-him-back-from-putting-berkshires-cash-to-work.html https://www.cnbc.com/2017/05/05/warren-buffett-reveals-whats...
    - dgacmu 7y ago
      Buffet is at 122B now: https://www.google.com/amp/s/markets.businessinsider.com/amp/news/warren-buffett-berkshire-hathaway-record-122-billion-cash-2019-8-1028416556 https://www.google.com/amp/s/markets.businessinsider.com/amp... But he invests differently - often buying entire, functioning companies.
      - alexnewman 7y ago
        Warren holding cash is a statement on equity values IMHO. This is not financial advice.
  - deleted 7y ago
    [deleted]
  - sytelus 7y ago
    Every big player is sitting on approximately that much cash: MSFT, APPL, GOOG. There is probably literally trillion dollars lying around in mostly liquid assets trying to find better long term opportunity. I think the productivity in last decade had been amazing but no one knows where to invest all these extra earnings they have had.
  - skinnymuch 7y ago
    Buffett did lose billions on Kraft Heinz which we’re huge purchases costing tens of billions.

bobthepanda 7y ago

$100B is way too big of a fund to be able to reasonably deploy. But Saudi Arabia needs to invest in something; they're $45B of that $100B.

skinnymuch 7y ago
But WeWork seems like an overly stupid investment to make, no? Uber was a calculated risk. But WeWork?? They better hope they can sell some stock at IPO and WeWork’s stock doesn’t totally tank during the holding period. WeWork could pretty easily result in billions in losses.
- empath75 7y ago
  WeWork just seems like outright fraud to me with a self-dealing CEO and with a lot of liabilities in the form of long term leases that they will never make a profit from.
  - thedudeabides5 7y ago
    Well if there's no inflation. Now, if we got some inflation, those leases would start to look pretty cheap. Then the debt turns into equity, viola! See lowering interest rates to 0 is fun.
    - joelx 7y ago
      This comment was downvoted for snark, but the point is accurate. Inflation could double rental prices and then all of Wework leases will be worth a lot.
      - superwayne 7y ago
        Aren't leases usually inflation adjusted?
        piva00 7y ago

RootKitBeerCat 7y ago

The strategy of SoftBank and all long term investments is for the companies and products they invest in to blossom into big money producing engines; they don’t care about short term time horizons, so much as picking 10-20% of their investments that will 10-10000x their initial investments over the next 20-50 years.

davidivadavid 7y ago
But there's no way they're going to see those return on late stage investments? For Uber to 10x from their current market cap, they'd have to be worth ~$700 bn. That seems hard to achieve, let alone multiples in higher orders of magnitude.
hkmurakami 7y ago
You have the stages and return profiles completely mixed up here. What your day is true for early stage. Not the case for late stage
- pishpash 7y ago
  Was Apple late stage enough in 2000?
  - sushid 7y ago
    Your example is an extreme outlier.
    - gingabriska 7y ago
      Yea the unicorns are always outliers. If one of the company actually ends up being Apple, they'll win.

paxys 7y ago

They are a late stage investor, so their bets are expected to be expensive. They are also not looking for quick returns, but rather counting on their portfolio companies to substantially change the industry that they operate in over the long term. i.e. Uber for driverless cars, semis, logistics, shipping. WeWork for pulling off spaces-as-a-service globally (for offices, apartments, schools, lifestyle services). Slack being able to shift enterprise communication and collaboration away from email and Microsoft products. And while their top 2-3 investments get all the PR as expected, they are in a ton of different sectors and countries - https://visionfund.com/portfolio https://visionfund.com/portfolio.

cruano 7y ago
"A corporate group growing for the next 300 years" I think that says it all

auspex 7y ago

I think the biggest thing you are missing is that Softbank gets a guaranteed return on IPO. If their shares are < agreed_return Uber issues them shares to make up the difference. But after the IPO they are on their own. So if the price drops or they hold a huge position it can be a problem.

streetcat1 7y ago

Its called momentum investing.

onetimemanytime 7y ago

That's the only way one can deploy hundreds of billions.

whazor 7y ago

Banks have tons of offices which they want to lease out (property). Therefore investment could be as simple as lending properties.

tim333 7y ago

From their blurb: >The SoftBank Group has grown by anticipating paradigm shifts in technology and building businesses to take advantage of the next era. They kind of look where the market is shifting eg ride sharing, co-working and try to invest in the leader eg. Uber or WeWork. I guess the theory is as the world shifts that way they will make profits. Time will tell with Uber and We. They did well with AliBaba and Yahoo in the past.

xivzgrev 7y ago

I worked for a company that took SoftBank money, though I joined after the investment. As someone else mentioned they are later stage investors, and do look for potentially transformative things. In order to get in they offer large investments and ridiculous valuations, which appeal to entrepeneur’s egos. The dark side of accepting money at high valuations is The Next Round. If you aren’t profitable by the next time you need money, you better have shown enough growth to not only match the SoftBank investment but to go beyond it to a reasonable investor. Otherwise you don’t have a growth story and investors turn their noses up (or offer shitty down-round terms). So in a way SoftBank can (and has) torpedo its own investments by its entry strategy and human greed. In the case of my company they eventually sold, but only after a complete pivot and focus on a different market, and ultimately at a lower price.