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SoftBank has walked away from startups, months after submitting term sheets
- jjmorrison 7y agoI don't read anything here that isn't par for the course when it comes to fundraising. This is how it works with all VCs. Money isn't in the bank until it's in the bank. I get the frustration that it wastes time, but for better or worst, that's the game today. It might be a problem worth discussing, but if so, it's a venture capital problem, not a Softbank problem.
- JumpCrisscross 7y agoTerm sheets are not binding. An expectation of a term sheet is more tenuous still. Little described in this article approaches "shafting". (Creator's 6-month exclusive term sheet being the exception. But, like, hamburger robots.) > Given we’re a fiduciary and investing very large amounts of capital, our investment process is more rigorous than unregulated investors and typical VCs. Hilarious. Rigorous process? SoftBank? Also, who regulates the Vision Fund? Do they think they’re unique in having a fiduciary duty to their LPs?
- rdlecler1 7y agoThey are a registered investment advisor unlike most VCs who have a VC exemption. a16z also took this step to give them more flexibility.
- ping_pong 7y agoThis sounds like VC 101. Same tactics, or worse, occur at all VC firms across Silicon Valley.
- brenden2 7y agoThey're trying to make this a story about SoftBank being bad, but this just sounds like normal business. I have been "shafted" by VCs before, in similar ways, but none of them were SoftBank specifically. This is just an attempt to make a story (and drive clicks) out of the punching bag du jour.
- JumpCrisscross 7y ago> this just sounds like normal business All except Creator. Getting a company to enter into "an exclusive, six-month term sheet" is unusual and shitty.
- brenden2 7y agoIndeed, 6 month does seem onerous. Definitely a tough lesson learned there.
- utopian3 7y agoWhat are the negatives that the six-month term sheet implies that I'm missing (I'm not familiar with them)?
- brenden2 7y agoThe negative is that you can't go out and do fundraising with any other parties until that 6 months is up. Depending on how much runway you have, that might be terminal for some startups. I think 30 days is more typical, but YMMV. If the company is in dire need of funding then the VCs can usually get away with more.
- OnlineGladiator 7y ago> The company pushed back, and SoftBank agreed to wire between $10 million and $15 million as a show of good faith. It sounds like they probably came out ahead anyway, if runway was even slightly a concern for them.
- arcticbull 7y agoRemember folks you haven’t raised anything until the check clears.
- privateSFacct 7y agoRight - the term sheet is the "price sheet". The buyer still has to buy.
- privateSFacct 7y agoThey really need to share more details of these term sheets that fell through so we can confirm they were either binding or signed. "Term sheets are non-binding, and even though they should signify a VC has conviction in investing in you and is ready to move towards closing, they fall through more often than most founders may expect." - https://techcrunch.com/2015/05/22/three-reasons-your-term-sheet-may-fall-through/ https://techcrunch.com/2015/05/22/three-reasons-your-term-sh... If these were signed term sheets and the investor has done a few weeks of legal / financial due diligence - then yes - not common. If these are deal or talking point term sheets with no definitive agreement and little formal due diligence - then those do fall away more often.
- rdlecler1 7y agoEven worse, SB now casts shade on the startups by claiming they do more rigorous diligence with the implication that if a deal doesn’t close it was because something was wrong with the startup.
- perlgeek 7y ago> our investment process is more rigorous than unregulated investors and typical VCs that would be easier to believe if the wework screw-up hadn't happened.
- hluska 7y agoI’m a sample of one and this is anecdata, but in my experience with VCs, there is due diligence and then due diligence after that firm has a major disaster.
- moralestapia 7y agoFunny that both Honor and Seismic seem like good deals from a quick skim. Both have established their products and markets clearly, pull on decent revenue, have been growing continuously, no scandals, no weird CEOs, nothing illegal, no "break it till you make it" attitude. They are both on sectors which are extremely profitable and whose customers' churn rate is relatively low. SoftBank: Nah, I think I'll pass.
- duxup 7y agoI would hope they could find other money too if they are as you describe. Presumably SoftBank's decisions maybe were influenced by internal changes / concerns / etc.
- seemslegit 7y ago" Seismic ia San Diego-based maker of B2B sales software that's raised over $180 million in VC funding, most recently at a $1 billion valuation, from firms like General Atlantic, Jackson Square Ventures, Lightspeed Venture Partners, and JMI Equity., " Who would be shafted if that deal went through ? Those valuations are just not credible anymore - it's more likely that SoftBank recent experience has made them shaft-averse.
- gvb 7y agoThat is a different Honor than the one stated in TFA: Honor is a San Francisco home care company for older adults that's raised over $100 million from firms like Andreessen Horowitz, Naspers, and Thrive Capital.
- seemslegit 7y agoMy bad, meant Seismic - corrected.
- rossdavidh 7y agoThey could be entirely legitimate, potentially profitable companies, and still not be worth half their current alleged valuation. I am not familiar with either, I'm not saying this is the case, just saying they could be entirely legit from one point of view, and still not a good investment.
- Zigurd 7y agoThat term sheets are not binding is technically correct (the best kind of correct, I'm told). But it should be so reputationally bad that it should only happen among third tier players and wannabes who don't have reliable limiteds.
- jacquesm 7y agoI've had a VC walk out on a signed terms sheet due to 9/11. I didn't like it but totally understood their motivations and it's hard to enforce a terms sheet. Still, it was less than classy and I would not attempt to do business with them again.
- code4tee 7y agoTerm sheet isn’t a deal. Same way an “accepted offer” on a house isn’t a purchase contract until you have an actual contract. Clearly SoftBanks is having its challenges but this just sounds like normal deals falling apart during pre-closing due diligence. You don’t have a deal till you have a deal.
- CalChris 7y agoIf a term sheet isn't a deal, and I kinda agree that it isn't, then what is an exclusive, six-month term sheet? Why would someone sign a six-month exclusive non-deal? BTW, a term sheet is usually very specific about it being for discussion purposes only.
- matthewowen 7y agoTo take a lesson from Thucydides, "the strong do what they can, and the weak suffer what they must".
- bsder 7y agoSome level of exclusivity isn't necessarily bad. The purchasing company doesn't want you using their deal to shop around. VC's are sheep, and having Softbank interested would generate lots of FOMA (Fear of Missing Out) amongst the herd. However, 6 months instead of 30-45 days without a useful fee for non-execution sounds like the company wasn't in a good place to begin with.
- jalonso510 7y agoWhen term sheets say they are non-binding, they will usually say "except the sections about confidentiality and exclusivity". So those will be the only parts that actually are enforceable promises. But the exclusivity period is typically 30-45 days. There would have needed to be some particular reason for six months, given how far off-market it is.
- CalChris 7y agoThanks. No shop. It is, in fact, spelled out in the NVCA model term sheet. Still, why SoftBank would ask for 6 months is a conundrum.
- blueadept111 7y ago"Time is one of a startup's most valuable assets, and several startups and their CEOs have been robbed of time by SoftBank's actions" Oh boo hoo! The line up for getting someone's else money slows down sometimes? Or even stops! The nerve!
- bitKong 7y agoThis looks more like a bad painting of softbank, though deals can go either way and at best softbank should do better at their own due diligence before making interest/commitment by way of term sheet and All tha
- xivzgrev 7y ago...duh? They just had WeWork blow up in their face and naturally they're going to pump the brakes. There were probably a lot of in-process deals going on. Coming from someone who worked in a company that received Softbank investment, it's a huge hassle. The ONLY reason to take Softbank money is to get a huge sum of money at a huge valuation and reduce your "cost" of said money. But for me personally, the costs aren't worth it. First, there's the inflated valuation. It's a great MO for Softbank - they get you by stroking your ego and flashing big (exaggerated) valuations. But does anyone ever think about the next round? No one else after is going to invest at that valuation + extra, unless you really knocked it out of the park, so you are stuck with them for future rounds. Or IPO (Hello Uber). Startups are hard - why are you making it more difficult for yourself to succeed? Second, the ongoing effort. You don't have one or two guys at a VC firm you are working with, you have a bureaucracy you are working with, in a completely opposite timezone, with a very different working culture. Maybe it makes sense for a company who is on their last round of funding before IPO, just needs one last cash push to get everything there, and can pay a bunch of people to deal with the BS. But that's not most startups.
- rossdavidh 7y agoIt is an interesting point about the timezone/culture difference. I wonder if Softbank's VC investments in Japan have done any better?
- streetcat1 7y agoSo if I have two VC approaching, once offered me 1M for 20% and the other one offered 10M for 20%, I should take the first one?
- neximo64 7y agoOk lets start the countdown for the "How softbank turned around" headline. VC investments are just that some go bad and some go well. Wework could eventually end up fine still. They go big or go home, for now its home and then there's dusk.
- grumple 7y agoTwo of those three startups are clear losers. Not surprising.
- opendomain 7y agoWhich two? Why do you think that?
- grumple 7y agoHonor and Creator. Honor is trying to enter an established industry full of complex legal entanglements and where there are already tons of players. They aren't revolutionizing this space at all. I mean, it's fine as a traditional business goes as far as I can tell. Why is VC involved? Creator is going the wrong direction for food imo. Fast food has been on the decline for several years. Assuming we have more good economy to come than bad, this will only continue. People want high quality products, healthier products, and customized products. And sometimes a human experience. What will happen to this machine and the food when the novelty wears off? They'll get neglected like vending machines, or start breaking down due to cut corners in maintenance. The burgers look pretty bad and the reviews seem to agree. Maybe I'm wrong about this one and this is the golden fast food standard of the future, but I'd want to see more of those problems handled.