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SoftBank plans to lend $20B to its CEO and employees amid volatile markets

109 points by lettergram 7y ago

rkimmel 7y ago
Makes complete sense.
nobrains 7y ago
Can someone explain the economical incentives behind this and how it helps SoftBank and the employees? I understand what they are doing but I don't understand how it will work to succeed.
- mushufasa 7y ago
  5% for a loan is pretty good these days if it's low risk. With yields way down and now negative, it's hard for companies to make use of cash reserves. If SoftBank has cash, and they know that employees are making way above 5% returns on average (cough Vision Fund), then it seems like a good investment. For example, 0) SoftBank loans extra cash to Masayoshi Son. 1) Masayoshi Son invests a portion in the next Vision fund which makes 40% returns, and the rest in safer strategies (public equities, long-term debt) 2) Masayoshi Son makes a killing, has no trouble repaying the loan. 3) SoftBank just grew their cash reserves well above the market rate. The key assumption here is 2). But since this is a loan, and Masayoshi Son invested most of the money in safe investments (and has a lot of wealth anyways), even if the Vision fund underperforms, SoftBank can be confident they can still make money back (step 3). They're using their advantages to build their own unique loan product.
  - joosters 7y ago
    Why bother with the middle man? If Softbank is so confident that its vision fund is going to make much bigger than 5% returns, it should be putting the money directly into there. The fact that it doesn't do this is a little ominous. Why does it believe that it will get a better return by loaning out cash at 5% rather than investing in its own fund?
    - mushufasa 7y ago
      Because you can't just take corporate cash and invest it in a private equity fund. Fiduciary duty requires low risk products, and liquidity. Generally that means long-term debt (e.g. t-bonds) or 'corporate paper' which are nearly risk-free. Those yields are 3% or lower, certainly less than 5%. The risk profiles are about as far away from a VC fund as can be. Generally a personal loan would be way too risky for corporate cash -- so this is actually an incredible show of confidence in the Vision Fund!
      - phyalow 7y ago
        >>"Because you can't just take corporate cash and invest it in a private equity fund." Says who? And yes you can, indeed read their financial statements, SB Holdings is a principal investor through and through. It is the directors duty and their imperative as good corporate governors (a rare phenomena in Japan) to deploy and allocate capital in the most efficient manner possible to the highest return opportunities. This reeks of cronyism. The vision fund is a mess of hand marked low/negative free cash flow generating businesses, check out their share price performance in 2001, for a preview of what's to come.
      - hollerith 7y ago
        >Because you can't just take corporate cash and invest it in a private equity fund. Fiduciary duty requires low risk products, and liquidity. I call bullshit. Specifically, what you wrote is not remotely true under US law or under Japanese law. A company's managers have very broad leeway to spend the company's cash however they like. In fact, if the cash, treasuries, corporate paper, etc, of a company starts to pile up over the years, the markets tend to take that as a sign of managerial incompetence or at least managerial lack of vision. Anyone that can buy and hold shares in SoftBank can also hold cash, treasuries or corporate paper directly. In other words, SoftBank's investors don't need SoftBank to hold cash, treasuries or corporate paper on their behalf; they invest in Softbank because they expect that SoftBank has a more ambitious plan than that. Creating and selling the iPhone is an example of an ambitious plan that turned out extremely well for investors in the company with that plan. If that argument is not persuasive enough, consider this concrete counterexample to your claim: for 6 years, Google had a venture-capital arm: https://en.wikipedia.org/wiki/GV_(company) https://en.wikipedia.org/wiki/GV_(company) Specifically, although GV is currently owned by Alphabet, for a period of 6 years before that it was owned directly by Google (under the name Google Ventures I believe).
  - danvoell 7y ago
    And if the Vision Fund doesn't generate profitable returns? How levered are the employees?
rococode 7y ago
Tangentially related: Could someone explain to me why SoftBank often seems to be the only major company playing in the "traditional" VC space? We hear of the "SoftBank round", but not, for example, the "Microsoft round" or the "AT&T round". Relative to many companies, SoftBank is not so big. And the bigger companies do have VC-style subsidiaries set up (e.g. Microsoft's M12). But SoftBank seems to make the highest profile investments by a significant margin. Is there any particular reason for this? Are they simply more tolerant of risk and therefore write bigger checks?
- mushufasa 7y ago
  Softbank isn't really a traditional company. And it's not really a bank. It started as a kindof publisher for software ("software bank"), so it has a lot of expertise in identifying and distributing new technologies, and it's essentially acted as a holding company for tech investments (including alibaba) since 2000. Really it's the manifestation of Masayoshi Son, who is an incredible entrepreneur, technologist, and investor. Apple+ more invest in the Softbank Vision fund, so the "SoftBank round" is already what you are thinking.
  - KptMarchewa 7y ago
    >Apple+ more invest in the Softbank Vision fund, so the "SoftBank round" is already what you are thinking. Yeah, but by doing this they essentially outsource the process to Softbank. I'm assuming OP is curious why they won't make the decisions themselves.
    - mushufasa 7y ago
      The Vision Fund is, among other things, the manifestation of the idea that an order of magnitude more scale will qualitatively change VC investing. VC funds historically have been in the hundreds of millions, so you can invest up to tens of millions in any one company to keep a balanced portfolio. SoftBank's Vision is in the hundreds of billions, so it can invest up to hundreds of millions. This means they can single-handedly shepherd companies across the 'valley of death' or out-spend the competition to reach critical network effects... Essentially instead of just making bets, they're tipping the scales. The point of this strategy is the scale, which is only possible by raising billions from sovereign wealth funds and mega corporations. No one company could do it. Apple's net income last year was ~$60 billion. The Vision Fund launched with $100 billion.
xxxpupugo 7y ago
What does this mean?
- downrightmike 7y ago
  19.999999999 billion for the CEO, 1 for employees.
5822130027 7y ago
It's important to understand what SoftBank is, and why betting against them is a bad idea. Globally we are going through a period of deflation. Japanese Banks have been dealing with this problem for 30 years now. BOJ can print money ( yen ) and flood the world and the value of the yen would still go up ! The reason is there is a lot of latent demand for Japanese exports. When Softbank invests in lets say India, ( through Uber drivers ), and suffers losses. The yens released ends ups creating demand for Japanese export. From Softbank's perspective it's a win-win, they get to be owners of really important tech companies and at the same time Japanese companies see a demand surge for their products. It's hard to understand initially - but don't be surprised to see Softbank clones propping up in Europe in 10 years - once the EU has been completely battered by deflation. In the US you might yet see the largest types of these funds in the future once the US govt. decides it wants some fiscal spending.
- blankaccount 7y ago
  Can you elaborate a bit on the part between Softbank spending on India's uber drivers resulting in an increase of Japanese exports? Is it just that there is a desire for Japanese products in India, but not enough cash?
  - vmurthy 7y ago
    Not OP but here's one way: Softbank invests in Uber India pushing up automobile demand[1]. Indian drivers buy cars manufactured by Maruti Suzuki (54% market share [2]). Maruti Suzuki is a JV between an Indian company (Maruti) and Suzuki (Japan) where-in Maruti pays 6% of sales as royalty for design and other facilities. In addition, you have to realize that Japan exports $35b of auto parts and $101b of automobiles [4]. So any lever which pushes up sales of automobiles in any nation is bound to have an impact on exports. [1] https://economictimes.indiatimes.com/small-biz/startups/demand-from-uber-ola-driving-car-makers-sales/articleshow/56633234.cms?from=mdr https://economictimes.indiatimes.com/small-biz/startups/dema... [2] https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/maruti-suzuki-regains-54-market-share-in-november/67047159 https://auto.economictimes.indiatimes.com/news/passenger-veh... [3] https://economictimes.indiatimes.com/markets/stocks/news/lower-royalty-payment-could-get-maruti-an-earnings-upgrade/articleshow/62660913.cms?from=mdr https://economictimes.indiatimes.com/markets/stocks/news/low... [4] https://oec.world/en/profile/country/jpn/ https://oec.world/en/profile/country/jpn/
mcthrowaway123z 7y ago
Sure we'll pay you, but the only place you can shop is the company store.
- cthalupa 7y ago
  No. There's no requirement they invest the loans in the Vision Fund. Nor is there a requirement to take out the loan. We already see something similar at law firms - partnership in a firm means literally buying into it, and one of the perks you receive at many law firms is the ability to take out a loan at favorable rates, particularly to help with said buying in.
  - deleted 7y ago
    [deleted]
  - C1sc0cat 7y ago
    I haven't heard of "partners" anteing up (paying) to become partners before - if you think about it this would favour "Tim nice but dim" with a rich mummy and daddy.
    - vikramkr 7y ago
      You sort of have to pay to become a partner to buy your equity share, that's just how it works, and as the other poster said, you can get a loan from the partnership to pay for your partnership buy in
      - C1sc0cat 7y ago
        I checked that and I don't see that requirement for Goldman Sachs or any other partnership set up - the potential for corruption and nepotism is huge if its pay to play. Some form of coops Mondragon for example do but that is a very different type of employment.
        phyalow 7y ago
tumetab1 7y ago
This smells like walking into bankruptcy. SoftBank was missing some billions for its own new fund and the solution is create debt to fund the fund. Since it's illegal for themselves to invest in their own... they workaround it through it's own employees. If a workaround/scheme is required to obtain enough capital for the fund... that means that either there isn't enough capital in the world or that the owners of such capital don't believe in the fund. The important question is why it's better to resort to this scheme than to not have enough capital for the fund?
- bsaul 7y ago
  OP says SoftBank contributes for 38b to their own 100b fund directly, so i don’t think your explanation is correct... Plus they apparently did the same thing in their first fund a few years ago.
  - tumetab1 7y ago
    Correct, thanks for that note. It seems that SoftBank wants to fund directly 38b$ and indirectly 20b$ through employees. In the first fund SoftBank contribution seems to have been 28B$ in a total of 93$B. It seems that SoftBank is having a hard time getting the Saudi Arabia to invest again in the new fund. In the first one they put 45B$.
    - jacquesc 7y ago
      Do you think they're still trying to get more Saudi money after the Jamal Khashoggi government sponsored murder? VCs need to be smart about their LPs. Idealistic startup founders / employees (the one's VCs tend to invest in) don't want to take blood money for their company.
      - JumpCrisscross 7y ago
        > Do you think they're still trying to get more Saudi money after the Jamal Khashoggi government sponsored murder? Yes. There has been zero backlash against SoftBank or Saudi-backed VCs from companies or consumers.
matt2000 7y ago
Bad idea: Being dependent on a single company for your salary while also holding mostly that company's stock in your investment portfolio. Worse idea: Also investing in that same company's highly risky VC fund. Worst idea: Borrowing money to do so.
- mv4 7y ago
  Softbank's deals - Sprint, WeWork, and now this - make me question their financial intelligence.
  - mrnobody_67 7y ago
    Their last Uber investment is under water... wouldn't be surprised if the $2b in WeWork stock they purchased is crushed as well at IPO time -- but at least they didn't follow through with the $8b they initially promised to Adam.
    - onlyrealcuzzo 7y ago
      I read that SoftBank structured their investment in some way that they made money on the IPO even though the price was below what they bought in at. It didn't really make any sense to me, but I wanted to ask here: Is there any truth to that? And if so how did it work?
      - charlesdm 7y ago
        I think they also bought common stock? During private fundraising, investor (vs founder) stock generally has preferred rights when the company is sold and/or liquidated. There might also be restrictions on who and how someone can sell their common shares. This depends on the investors and the terms that were negotiated during fundraising. So common stock generally is sold at a discount because it doesn't have any of these protections, and it's basically last in line to receive any payout. However during IPO, often preferred stock converts into normal common stock so that it can be sold to Joe Smuck (or their pension fund institutional) investor. Hence it's an arbitrage play; you purchase common at say a 30% discount in a late round and then sell it on the market for full price.
maximente 7y ago
there's reason to believe SoftBank is gonna go "boom", and in a big way: - they have tons of illiquid assets (equity in startups and early stage companies - hard to shed - see later) - SoftBank Vision Fund "borrows" from its huge illiquid assets (Uber + other SV stuff) in order to make the market by throwing around insane amounts of cash ($billions); in other words, they make their own markets in order to pump up their valuations but the underlying thing is fantasy-land VC goop (see any problems here?); - the only way to shed many of these assets are with buyouts or IPOs and the most recent ones haven't been great (the 'big names' of which [UBER, LYFT] were treated like hot garbage even shorted by IPO underwriters in case of UBER) so it's not like this garbage can be punted to someone else - SoftBank routinely sells assets to its Vision Fund and uses shady stuff like this in order to provide non-standard accounting; we have no idea what their financial health is due to a maze of non-standard reporting - SoftBank owns over half (!!) of Japanese corporate bonds - they have insane amounts of debt - "¥15.7tn ($143bn) of interest-bearing debt and ¥27tn of total liabilities, far greater than its ¥11.6tn market capitalisation" as best i can tell this is approaching Ponzi territory. once more greater fools wake up to the fact that VC isn't all the rage, get the hell out of the way of anything that SoftBank touches.
- neural_thing 7y ago
  I don't think softbank owns half of Japanese corporate bonds. It may be that its bonds account for over half the market.
  - whatok 7y ago
    It's neither. They account for half of the retail JPY corparate market. Much different and smaller market than overall (institutional) corporate market. Half of JPY corporate markets is an astronomical number that doesn't pass a basic sniff test. https://www.ft.com/content/24c4a8a8-7885-11e9-bbad-7c18c0ea0201 https://www.ft.com/content/24c4a8a8-7885-11e9-bbad-7c18c0ea0...
- thewarrior 7y ago
  I have a conspiracy theory kicking around in my head that Softbank might be a money laundering or tax saving scam of some sort. Why else would you invest 300 million in a dog walking app ?
herostratus101 7y ago
Can someone explain to me how this is not like that episode of Arrested Development where they steal a dollar from the banana stand and then throw out a banana to "cancel it out"?
- vikramkr 7y ago
  Of course it's nothing like that. That was one dollar, while this is 20 billion.
pascalxus 7y ago
Based on where equities are and where the bond market are, you're going to have one hell of a hard time trying to get 5% return on the loans they're handing out. Take a look at some of the projections on 10 year returns for equities and bond market. The 2018 Vanguard report shows equities will return 3% real return over the next 10 years, and there are many estimates lower than that. Bond prices are also at all time highs. I wouldn't even take this loan if it were 2%.

109 points by lettergram 7y ago

Makes complete sense.

Can someone explain the economical incentives behind this and how it helps SoftBank and the employees? I understand what they are doing but I don't understand how it will work to succeed.

mushufasa 7y ago
5% for a loan is pretty good these days if it's low risk. With yields way down and now negative, it's hard for companies to make use of cash reserves. If SoftBank has cash, and they know that employees are making way above 5% returns on average (cough Vision Fund), then it seems like a good investment. For example, 0) SoftBank loans extra cash to Masayoshi Son. 1) Masayoshi Son invests a portion in the next Vision fund which makes 40% returns, and the rest in safer strategies (public equities, long-term debt) 2) Masayoshi Son makes a killing, has no trouble repaying the loan. 3) SoftBank just grew their cash reserves well above the market rate. The key assumption here is 2). But since this is a loan, and Masayoshi Son invested most of the money in safe investments (and has a lot of wealth anyways), even if the Vision fund underperforms, SoftBank can be confident they can still make money back (step 3). They're using their advantages to build their own unique loan product.
- joosters 7y ago
  Why bother with the middle man? If Softbank is so confident that its vision fund is going to make much bigger than 5% returns, it should be putting the money directly into there. The fact that it doesn't do this is a little ominous. Why does it believe that it will get a better return by loaning out cash at 5% rather than investing in its own fund?
  - mushufasa 7y ago
    Because you can't just take corporate cash and invest it in a private equity fund. Fiduciary duty requires low risk products, and liquidity. Generally that means long-term debt (e.g. t-bonds) or 'corporate paper' which are nearly risk-free. Those yields are 3% or lower, certainly less than 5%. The risk profiles are about as far away from a VC fund as can be. Generally a personal loan would be way too risky for corporate cash -- so this is actually an incredible show of confidence in the Vision Fund!
    - phyalow 7y ago
      >>"Because you can't just take corporate cash and invest it in a private equity fund." Says who? And yes you can, indeed read their financial statements, SB Holdings is a principal investor through and through. It is the directors duty and their imperative as good corporate governors (a rare phenomena in Japan) to deploy and allocate capital in the most efficient manner possible to the highest return opportunities. This reeks of cronyism. The vision fund is a mess of hand marked low/negative free cash flow generating businesses, check out their share price performance in 2001, for a preview of what's to come.
    - hollerith 7y ago
      >Because you can't just take corporate cash and invest it in a private equity fund. Fiduciary duty requires low risk products, and liquidity. I call bullshit. Specifically, what you wrote is not remotely true under US law or under Japanese law. A company's managers have very broad leeway to spend the company's cash however they like. In fact, if the cash, treasuries, corporate paper, etc, of a company starts to pile up over the years, the markets tend to take that as a sign of managerial incompetence or at least managerial lack of vision. Anyone that can buy and hold shares in SoftBank can also hold cash, treasuries or corporate paper directly. In other words, SoftBank's investors don't need SoftBank to hold cash, treasuries or corporate paper on their behalf; they invest in Softbank because they expect that SoftBank has a more ambitious plan than that. Creating and selling the iPhone is an example of an ambitious plan that turned out extremely well for investors in the company with that plan. If that argument is not persuasive enough, consider this concrete counterexample to your claim: for 6 years, Google had a venture-capital arm: https://en.wikipedia.org/wiki/GV_(company) https://en.wikipedia.org/wiki/GV_(company) Specifically, although GV is currently owned by Alphabet, for a period of 6 years before that it was owned directly by Google (under the name Google Ventures I believe).
- danvoell 7y ago
  And if the Vision Fund doesn't generate profitable returns? How levered are the employees?

rococode 7y ago

Tangentially related: Could someone explain to me why SoftBank often seems to be the only major company playing in the "traditional" VC space? We hear of the "SoftBank round", but not, for example, the "Microsoft round" or the "AT&T round". Relative to many companies, SoftBank is not so big. And the bigger companies do have VC-style subsidiaries set up (e.g. Microsoft's M12). But SoftBank seems to make the highest profile investments by a significant margin. Is there any particular reason for this? Are they simply more tolerant of risk and therefore write bigger checks?

mushufasa 7y ago
Softbank isn't really a traditional company. And it's not really a bank. It started as a kindof publisher for software ("software bank"), so it has a lot of expertise in identifying and distributing new technologies, and it's essentially acted as a holding company for tech investments (including alibaba) since 2000. Really it's the manifestation of Masayoshi Son, who is an incredible entrepreneur, technologist, and investor. Apple+ more invest in the Softbank Vision fund, so the "SoftBank round" is already what you are thinking.
- KptMarchewa 7y ago
  >Apple+ more invest in the Softbank Vision fund, so the "SoftBank round" is already what you are thinking. Yeah, but by doing this they essentially outsource the process to Softbank. I'm assuming OP is curious why they won't make the decisions themselves.
  - mushufasa 7y ago
    The Vision Fund is, among other things, the manifestation of the idea that an order of magnitude more scale will qualitatively change VC investing. VC funds historically have been in the hundreds of millions, so you can invest up to tens of millions in any one company to keep a balanced portfolio. SoftBank's Vision is in the hundreds of billions, so it can invest up to hundreds of millions. This means they can single-handedly shepherd companies across the 'valley of death' or out-spend the competition to reach critical network effects... Essentially instead of just making bets, they're tipping the scales. The point of this strategy is the scale, which is only possible by raising billions from sovereign wealth funds and mega corporations. No one company could do it. Apple's net income last year was ~$60 billion. The Vision Fund launched with $100 billion.

xxxpupugo 7y ago

What does this mean?

downrightmike 7y ago
19.999999999 billion for the CEO, 1 for employees.

5822130027 7y ago

It's important to understand what SoftBank is, and why betting against them is a bad idea. Globally we are going through a period of deflation. Japanese Banks have been dealing with this problem for 30 years now. BOJ can print money ( yen ) and flood the world and the value of the yen would still go up ! The reason is there is a lot of latent demand for Japanese exports. When Softbank invests in lets say India, ( through Uber drivers ), and suffers losses. The yens released ends ups creating demand for Japanese export. From Softbank's perspective it's a win-win, they get to be owners of really important tech companies and at the same time Japanese companies see a demand surge for their products. It's hard to understand initially - but don't be surprised to see Softbank clones propping up in Europe in 10 years - once the EU has been completely battered by deflation. In the US you might yet see the largest types of these funds in the future once the US govt. decides it wants some fiscal spending.

blankaccount 7y ago
Can you elaborate a bit on the part between Softbank spending on India's uber drivers resulting in an increase of Japanese exports? Is it just that there is a desire for Japanese products in India, but not enough cash?
- vmurthy 7y ago
  Not OP but here's one way: Softbank invests in Uber India pushing up automobile demand[1]. Indian drivers buy cars manufactured by Maruti Suzuki (54% market share [2]). Maruti Suzuki is a JV between an Indian company (Maruti) and Suzuki (Japan) where-in Maruti pays 6% of sales as royalty for design and other facilities. In addition, you have to realize that Japan exports $35b of auto parts and $101b of automobiles [4]. So any lever which pushes up sales of automobiles in any nation is bound to have an impact on exports. [1] https://economictimes.indiatimes.com/small-biz/startups/demand-from-uber-ola-driving-car-makers-sales/articleshow/56633234.cms?from=mdr https://economictimes.indiatimes.com/small-biz/startups/dema... [2] https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/maruti-suzuki-regains-54-market-share-in-november/67047159 https://auto.economictimes.indiatimes.com/news/passenger-veh... [3] https://economictimes.indiatimes.com/markets/stocks/news/lower-royalty-payment-could-get-maruti-an-earnings-upgrade/articleshow/62660913.cms?from=mdr https://economictimes.indiatimes.com/markets/stocks/news/low... [4] https://oec.world/en/profile/country/jpn/ https://oec.world/en/profile/country/jpn/

mcthrowaway123z 7y ago

Sure we'll pay you, but the only place you can shop is the company store.

cthalupa 7y ago
No. There's no requirement they invest the loans in the Vision Fund. Nor is there a requirement to take out the loan. We already see something similar at law firms - partnership in a firm means literally buying into it, and one of the perks you receive at many law firms is the ability to take out a loan at favorable rates, particularly to help with said buying in.
- deleted 7y ago
  [deleted]
- C1sc0cat 7y ago
  I haven't heard of "partners" anteing up (paying) to become partners before - if you think about it this would favour "Tim nice but dim" with a rich mummy and daddy.
  - vikramkr 7y ago
    You sort of have to pay to become a partner to buy your equity share, that's just how it works, and as the other poster said, you can get a loan from the partnership to pay for your partnership buy in
    - C1sc0cat 7y ago
      I checked that and I don't see that requirement for Goldman Sachs or any other partnership set up - the potential for corruption and nepotism is huge if its pay to play. Some form of coops Mondragon for example do but that is a very different type of employment.
      - phyalow 7y ago

tumetab1 7y ago

This smells like walking into bankruptcy. SoftBank was missing some billions for its own new fund and the solution is create debt to fund the fund. Since it's illegal for themselves to invest in their own... they workaround it through it's own employees. If a workaround/scheme is required to obtain enough capital for the fund... that means that either there isn't enough capital in the world or that the owners of such capital don't believe in the fund. The important question is why it's better to resort to this scheme than to not have enough capital for the fund?

bsaul 7y ago
OP says SoftBank contributes for 38b to their own 100b fund directly, so i don’t think your explanation is correct... Plus they apparently did the same thing in their first fund a few years ago.
- tumetab1 7y ago
  Correct, thanks for that note. It seems that SoftBank wants to fund directly 38b$ and indirectly 20b$ through employees. In the first fund SoftBank contribution seems to have been 28B$ in a total of 93$B. It seems that SoftBank is having a hard time getting the Saudi Arabia to invest again in the new fund. In the first one they put 45B$.
  - jacquesc 7y ago
    Do you think they're still trying to get more Saudi money after the Jamal Khashoggi government sponsored murder? VCs need to be smart about their LPs. Idealistic startup founders / employees (the one's VCs tend to invest in) don't want to take blood money for their company.
    - JumpCrisscross 7y ago
      > Do you think they're still trying to get more Saudi money after the Jamal Khashoggi government sponsored murder? Yes. There has been zero backlash against SoftBank or Saudi-backed VCs from companies or consumers.

matt2000 7y ago

Bad idea: Being dependent on a single company for your salary while also holding mostly that company's stock in your investment portfolio. Worse idea: Also investing in that same company's highly risky VC fund. Worst idea: Borrowing money to do so.

mv4 7y ago
Softbank's deals - Sprint, WeWork, and now this - make me question their financial intelligence.
- mrnobody_67 7y ago
  Their last Uber investment is under water... wouldn't be surprised if the $2b in WeWork stock they purchased is crushed as well at IPO time -- but at least they didn't follow through with the $8b they initially promised to Adam.
  - onlyrealcuzzo 7y ago
    I read that SoftBank structured their investment in some way that they made money on the IPO even though the price was below what they bought in at. It didn't really make any sense to me, but I wanted to ask here: Is there any truth to that? And if so how did it work?
    - charlesdm 7y ago
      I think they also bought common stock? During private fundraising, investor (vs founder) stock generally has preferred rights when the company is sold and/or liquidated. There might also be restrictions on who and how someone can sell their common shares. This depends on the investors and the terms that were negotiated during fundraising. So common stock generally is sold at a discount because it doesn't have any of these protections, and it's basically last in line to receive any payout. However during IPO, often preferred stock converts into normal common stock so that it can be sold to Joe Smuck (or their pension fund institutional) investor. Hence it's an arbitrage play; you purchase common at say a 30% discount in a late round and then sell it on the market for full price.

maximente 7y ago

there's reason to believe SoftBank is gonna go "boom", and in a big way: - they have tons of illiquid assets (equity in startups and early stage companies - hard to shed - see later) - SoftBank Vision Fund "borrows" from its huge illiquid assets (Uber + other SV stuff) in order to make the market by throwing around insane amounts of cash ($billions); in other words, they make their own markets in order to pump up their valuations but the underlying thing is fantasy-land VC goop (see any problems here?); - the only way to shed many of these assets are with buyouts or IPOs and the most recent ones haven't been great (the 'big names' of which [UBER, LYFT] were treated like hot garbage even shorted by IPO underwriters in case of UBER) so it's not like this garbage can be punted to someone else - SoftBank routinely sells assets to its Vision Fund and uses shady stuff like this in order to provide non-standard accounting; we have no idea what their financial health is due to a maze of non-standard reporting - SoftBank owns over half (!!) of Japanese corporate bonds - they have insane amounts of debt - "¥15.7tn ($143bn) of interest-bearing debt and ¥27tn of total liabilities, far greater than its ¥11.6tn market capitalisation" as best i can tell this is approaching Ponzi territory. once more greater fools wake up to the fact that VC isn't all the rage, get the hell out of the way of anything that SoftBank touches.

neural_thing 7y ago
I don't think softbank owns half of Japanese corporate bonds. It may be that its bonds account for over half the market.
- whatok 7y ago
  It's neither. They account for half of the retail JPY corparate market. Much different and smaller market than overall (institutional) corporate market. Half of JPY corporate markets is an astronomical number that doesn't pass a basic sniff test. https://www.ft.com/content/24c4a8a8-7885-11e9-bbad-7c18c0ea0201 https://www.ft.com/content/24c4a8a8-7885-11e9-bbad-7c18c0ea0...
thewarrior 7y ago
I have a conspiracy theory kicking around in my head that Softbank might be a money laundering or tax saving scam of some sort. Why else would you invest 300 million in a dog walking app ?

herostratus101 7y ago

Can someone explain to me how this is not like that episode of Arrested Development where they steal a dollar from the banana stand and then throw out a banana to "cancel it out"?

vikramkr 7y ago
Of course it's nothing like that. That was one dollar, while this is 20 billion.

pascalxus 7y ago

Based on where equities are and where the bond market are, you're going to have one hell of a hard time trying to get 5% return on the loans they're handing out. Take a look at some of the projections on 10 year returns for equities and bond market. The 2018 Vanguard report shows equities will return 3% real return over the next 10 years, and there are many estimates lower than that. Bond prices are also at all time highs. I wouldn't even take this loan if it were 2%.