Softbank: Go Big and Never Go Home
Softbank is a secret hidden in plain sight.
When I typed Softbank in my newsletter inbox search bar, I found hundreds of results, and several mentions on a daily basis.
How is Softbank a company under the radar?
Ok, fine, let’s get to know SoftBank.
In this piece, you’ll get to know:
What is really Softbank? It gets confusing, it’s good to have a base
Who is Masayoshi Son and why is his name not as famous as Steve Jobs?
Masa is cool… but who else is on board in Softbank?
What are the Vision Funds and why are they so hated on? Also will cover the Latin America Fund, which doubled the VC investable amount in Latin America.
I WANT MORE. Gotcha. More sources to read about this insane company at the end.
There are two things you need to know about Softbank:
They are big. You’ll become desensitized by the huge numbers and actions as you read. Fine. But after you read this, when you hear of investment rounds or bold strategies, assume that Softbank made it bigger until proven otherwise. You’ll be seldom proven otherwise. And that’s the catch.
They are consistent with Masayoshi Son’s vision, succeeding or failing. Masa is the founder and president, and he created the company at the age of 24 thinking of a category that would grow in the following 50 years. He wants to make people happy through the Information Revolution.
What is Softbank
Softbank stands for Software Bank. It was founded on September 3, 1981, by Masayoshi Son (Masa) and is headquartered in Tokyo.
Their slogan: Making people happy through the information revolution. And they did not come up with that yesterday, you can read it even in their Annual report of 2010.
Softbank consists of 5 business segments:
Softbank segment: This was the origin of the company. It includes the sale of mobile terminals, infrastructure, and PC software.
Yahoo segment: Yahoo might be dead someplace else, but in Japan, it is still the go-to. It came from the Vodafone Japan acquisition, one that happened after Masa got exclusive rights to distribute the iPhone in 2006.
Softbank Vision Fund and Delta Fund: the segment for investment activities in tech. This segment includes the (in)famous Vision Funds, the 555 Fund investing in FAANG stocks, and the VC Softbank Ventures Asia.
Brightstar segment: for distribution of mobile terminals overseas. Brightstar was founded by Marcelo Claure, who nowadays is Head of Global Business Unit and COO; and was acquired by Softbank in 2014. Softbank sold the stake in Brightstar to Brightstar Capital Partners in early 2021, after money losses.
Sprint segment: for mobile communications services in the US. Softbank acquired 70% of Sprint in 2012 and merged the Sprint segment with T-Mobile in 2020.
Softbank is a company that has historically grown through M&As. Masa believed the future was mobile and made the investments accordingly, using debt to finance those deals.
The largest assets of Softbank Group are ARM, which is in process of being sold to Nvidia, and Alibaba. Softbank invested in Alibaba in 2000: 20M dollars for a 30% stake, gradually growing to 34%. After its 2014 IPO, the investment was worth $60BN, a x3,000 return, and nowadays they hold 26%, with a $100BN worth. It is considered the second greatest investment of all time. Softbank sold part of their stake over time, but still holds a big % and is one of their most significant assets, and use it as collateral for debt. Jack Ma has been an Independent board member for years in Softbank.
Masayoshi Son: an extraordinary man
Masayoshi Son: the man who founded the company at the age of 24 and the one bringing the philosophy of Softbank. Consistent, prone to risk, and overall proponent of the Information Revolution.
Praises are frequent to Masayoshi Son (Masa), they can feel like a lot, but you cannot say the man is ordinary: he sold a translating device he invented for $1M in college.
He’s part genius, but part of his success can be attributed to “fake it til you make it”. He is a consistent man.
He founded Softbank at the age of 24, after returning from Berkley. When he returned, he wanted to create a company in Japan, and had several criteria for creating his company:
He must fall in love with what he would do for at least 50 years, and get excited as the years passed.
The business should be unique.
In 10 years he wanted to be #1 in an industry in Japan.
Pick a business where the category would grow for the following 30-50 years.
The PC business was it for him and started off Softbank for software dealership. 3 months into Softbank, he participated in a consumer electronics show in Tokyo, where his booth was packed but no dealership contracts were signed for Softbank.
Later, he went to visit Joshin Denki for software dealership. It was a huge potential client, and he had no other clients to vouch for him. He made a deal with Joshin Denki for exclusive software distribution rights, under the sole premise that Masa would specialize in software distribution while they diversify.
He used Joshin Denki’s reference to win more clients. 6 months in, they were supplying software to 200 suppliers. In 1 year, Softbank's monthly revenues went from $10,000 to $2.3M.
But Masa’s journey has not been hit after hit, a reason that can explain why he is infamous to some and unknown to others. In the 2000s, for a short time span fueled by the dot-com bubble, he was the richest man in the world. However, after the bubble burst, Masa lost more money than anyone in the history of the world, and Softbank’s market cap plummeted from $70BN to $600M.
But Masa and Softbank recovered from it and kept signing great deals like the exclusive distribution of the iPhone in Japan in 2006, or the creation of Vision Fund I in 2016, the largest fund in the world.
But there’s more to Softbank: the team
When reading or listening to Softbank, you run into Masa a lot. Masa here, Masa there, Masa said that, Masa did that.
I wondered why in such a big company we would read just one name. Yes, the man is extraordinary, but Softbank employs more than 80,000 people and has a market cap of $126BN, you need a team. This could come from a single founder-centered culture we have: Alibaba was founded by 20 people yet we only hear Jack Ma.
One thing Masa does is paying the highest compensations for executives in Japan, with 8 top executives making $64M in 2020. The top 6 are:
Rajeev Misra, who joined Softbank in 2014 after spending 25 years in the finance industry. He is the CEO of the Vision Fund since 2017.
Marcelo Claure, who joined Softbank after the 2014 acquisition of Brightstar, which got sold in 2020. Marcelo is a Bolivian-American billionaire, acting as the head of the Latin America Fund, COO of Softbank Group.
Ken Miyauchi, who joined Softbank in 2015. He used to be the CEO, and in April 2021 got promoted to representative director and chairman.
Junichi Miyakawa, president and CEO of Softbank, used to be CTO and has been promoted due to his AI expertise.
Ronald Fisher, who joined Softbank in 1995 after running a software company in the US, being one of the most tenured executives since joining the board in 1997. He however is leaving the board of directors and will continue to advise for the Vision Fund.
Simon Segars, who joined Softbank in 2016 after the acquisition of Arm, his chipmaking company which became one of the most relevant segments in the Softbank group. It was the largest acquisition of a European company, for $31.4BN. He is leaving Softbank after the sale of Arm to N-Vidia for $40BN.
Given the radicality of Softbank, people management is not the easiest: people leave Softbank, and executives change positions. In November 2020, several executives resigned amid the failure of Vision Fund I. Even Jack Ma, who was a board member, left after 13 years.
Yuko Kawamoto, the first female director in Softbank left in 2021. She left a public message on her departure, and one of the biggest challenges she cited was the succession of Masa. His role is very important, and it is risky that Softbank is so dependent on him because as much as his legacy can last, he won’t live forever.
Vision Fund I
The Vision Fund is the largest tech investment fund in the world with a capital of $98BN, investing tickets averaging $100M. It was announced in October 2016 and launched on May 2017, as a private technology fund investing in AI, communications infrastructure, consumer internet, mobile computing, and robotics. As of today, 40% of the investments in Vision Fund I are in the Logistical Area.
Vision Fund I is that person who does the grand entrance at the party no matter what. $100M minimum investment (please, let that sink in). Like it or not: Uber and Didi said they did not need such amount of cash, and Softbank said that otherwise, they’d be happy to invest that in their competitors. They changed their minds.
The composition of the Vision Fund is rather unusual: it is 50% of the capital comes from the Saudi Arabia and UAE sovereign funds, in the form of preferred stock with a 7% coupon. The remaining part of the capital came from Softbank ($25BN) and smaller contributions ($1BN) from Apple, Larry Ellison’s family office, Qualcomm, Sharp, and Foxconn.
But like people making grand entrances at parties, Vision Fund I gets talked about, for the good and the bad. In 2020 they lost $17.7BN for WeWork investment, causing them to report overall losses of $12BN, and making them infamous on their large bets of companies.
However, SoftBank’s Vision Fund investment arm went from being the source of the biggest loss in SoftBank’s history a year ago to the main driver of earnings, with a $46BN profit in 2020, as reported in March 2021. They broke the record of the largest profit reported for a Japanese firm.
We see both sides of the payoff: they are well aware that injecting large sums of capital can take the company to the next level, or have them forget that they need to become profitable. Masa acknowledged this after the WeWork failure, lowering the expectations for Vision Fund II.
Vision Fund II
Vision Fund II was created with the same philosophy of Vision Fund I. It had the goal of raising more than $100BN, but launched in 2021 with $30BN.
Vision Fund II was promising to be the second grand entrance at the party, but the guests had become tired of Vision Fund I. They aimed at raising $108BN but ended up raising $30BN as of 2021, with $10BN from Softbank, proving that they believe in themselves.
Still, they aren’t slowing the investment pace: Softbank is set to participate in more VC deals in 2021 than ever, recording 69 deals in less than 6 months.
Latin America Fund
After reading about Vision Fund I ($108BN) and Vision Fund II ($30BN), if I tell you the Latin America fund is $5BN it will look like its baby brother. But bear with me: the invested amount in VC in Latin America in 2019 was $4.6BN, therefore, the Latin America Fund doubled the VC investable amount in Latin America.
It launched in 2019 to support the Latin American ecosystem, under the claims that they believe in local expertise. It is led by Marcelo Claure and managed by Paulo Passoni. They have already invested $2.6BN in 6/10 of the largest unicorns in the region: Rappi ($1BN), Kavak, Loft, Loggi, Creditax, and VTEX. Those investments are currently worth $4BN.
The Latin America fund has a strong focus on fintech, an industry that needs large investments to take off. They want to create a cluster of number 1s.
As of 2021, they aim at investing $1BN, continuing to have 70% of the investments in Brazil but looking beyond.
How did Softbank stay under the radar?
I have an inbox very skewed towards startups and VCs, so the Vision Fund(s) made Softbank appear all the time. However, in my early awareness, I was overlooking Softbank without realizing how much influence it has in global business.
The Vision Fund has changed the VC landscape for good. With its $100M investments, it can be an easy exit for a VC when the startup scales enough, making seed investments less risky. It becomes the new option. However, injecting large sums of money into startups can work well, or can make them sink by having them focused on growth rather than profit.
Masayoshi Son is a name that was probably in business school a while ago, but his risky bets and fast losses probably discouraged lecturers to talk about Masa as a best practice example. He is not easy to replicate either: you probably don’t have the money (I did not sell a device for $1M in the 1970s in college), so you need it from VCs or banks, which will kindly remind you to grow and hedge. Same if you have money: you want to be safe, you hedge for risk. Those Mavericks who found themselves in the same situation as Masa surely have their own traits and vision, and don’t want to replicate the book.
There’s only one Masa, the Masa who believes he will change the world with technology.
He impacted already: the VC industry won’t be the same, he revolutionized the telecommunications industry when he invented the new common carriers, he introduced the iPhone in Japan. I wonder what more decades of him in business will bring, it will for sure be interesting.
But interesting does not always mean good or loved by all. In the VC industry, there is the argument that Softbank invests large sums that can propel players to stardom or inflate valuations and have them compete in price wars (as it happened for WeWork…).
I agree on this point, except for the Latin America fund. Those large sums are risky, especially in that environment, but if Softbank didn’t put those $5BN, doubling the available funding in the region, who would? What is the cost of waiting longer? There has not been another player willing to bet so much on the continent. For better or worse, the Latin America Fund is pushing progress. As everything Softbank does.
To dive deeper into this rabbit hole…
If reading about Softbank got you as excited as myself, I’ll bring you some sources to dive deeper.
The 1992 interview of Harvard Business Review with Masa. I wasn’t blinking the whole time I was reading.
Read it here: https://hbr.org/1992/01/japanese-style-entrepreneurship-an-interview-with-softbanks-ceo-masayoshi-son
The Annual Reports of Softbank: along with financial statements, they publish annual reviews. These show the consistency of Softbank’s vision.
Find them here: https://group.softbank/en/ir/financials/annual_reports
Masa madness, of Not Boring. Packy explores many angles of Softbank in this piece. It was published in September 2020, in the time when WeWork had failed and all the calls of the 555 Fund had been discovered.
Read it here: https://www.notboring.co/p/masa-madness-3cb
Listen to it here:
That’s it from me! If you liked this, share it with someone who’d like it too. Furthermore, if you have feedback or interesting stories you’d like to learn from, do not hesitate to contact me!