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off on your first project. The legend goes that Masayoshi Son
wanted to fund the future's ideas, so he created a $30 BN dollar fund. That's right, $30 BN.
But just before he met with potential investors,
he fiddled with the slides and changed the amount. The fund wouldn't be $30 BN. It would be $100 BN.
The investors laughed out loud. He didn't. "Life's too short to think small", he said.
And nothing about his journey to becoming one of the world's most prominent billionaires has
been small. His company, Softbank, is a giant in multiple industries,
with aggressive investment and fast expansion. But also, controversy and very costly mistakes.
We are going to talk about Softbank in this episode of Company Forensics.
When Masayoshi Son arrived in the US,
his English was limited, but his dreams were big. After reading about microchips,
he felt computers were the future and created his company, Softbank. In 1981, he began importing
PC software from Japan then ventured into the publishing business, with PC magazines.
By 1990, Softbank Corp. Japan became Softbank Corp and now brought services
from the US to Japan. Son created yet another company, Softbank Holdings Inc.,
to look for investment opportunities, and, by 1994, he had his eyes on large-scale acquisitions.
And it didn't take long. Through one of the first acquisitions,
Ziff-Davis, Son discovered none other than Yahoo and decided to invest in it
and launch Yahoo Japan, which would become a giant umbrella for other internet businesses.
Having evolved into a holding company, in 2000, Softbank invested in another potential giant,
Alibaba. The alliance would include business partnerships, joint ventures, and investments.
By that year, Son was briefly the world's richest man in 2000, only to have 93% of Softbank's
wealth disappear after the dot-com bubble burst, which left him about $8 BN, so he was still o.k.
Softbank then aimed to also become a telecom giant, by investing in fixed-line communications
in 2004 and buying Vodafone KK in 2006. Such moves allowed them to be the exclusive iPhone
representative in Japan, which gave them a substantial presence and even more buying power.
And they continued to use that buying power. In 2013,
Softbank purchased Sprint Nextel, one of the US's biggest phone carriers.
Now one of the biggest companies in the world, Softbank, didn't stop
the spending spree. Under Son's vision for the future, Softbank invested in computers
and robotics, and it even came up with a 300-year plan for the company. And it was
that attitude which set Son apart. I mean, how do you take such a vision seriously?
Well, Son backed up his words with actions. That's when he created his famous
$100 BN Vision Fund. And the Vision Fund was a reflection of Softbank's attitude:
its investment is so aggressive, the minimum per round is $100 million.
And Softbank's intentions are clear. Per the Japan Times, Son said:
Translated, this means having control.
But some have considered Son's investment methods as too risky.
The Vision Fund is $100 Bn. Son plans to resupply the $100 BN every two or three years.
Let's put this into perspective. According to the National Venture Capital Association,
the US's entire US venture capital industry was $75.3 BN in 2016.
Here are some examples of Softbank's crazy investments:
$9.3BN in Uber, 2.3BN in GM Cruise, and $5.5BN in Didi. In 2017, Softbank purchased
Boston Dynamics to further venture into robotics, an area Son is sure will grow in the future.
And there was no sign of stopping. Son has repeatedly said:
So, with one of the most massive
funds in the world and the future at grasp, it seems the ride is perfect.
But then, we get into WeWork. It was an all-out investment,
only how Softbank can do it. In November 2018, Softbank invested $3 billion,
and another $2 billion in 2019, which skyrocketed Wework's valuation from $20 BN to $47 BN.
Red flags waved all around; they should've, at least. But the world celebrated Wework's
valuation. And mind you, this wasn't the only investment Softbank made on Wework. They had
invested $4.4 BN in 2017, and with the final cash injection, Softbank was basically in control.
But the hype was short-lived. From a failed IPO to chaotic management
within WeWork (check out our video on it), and the current health crisis,
Wework's value plummeted. But this is a teaser; I can't tell you yet.
In these past two years, WeWork has been a seesaw ride of promises, failures, mistakes,
and a very peculiar CEO. And, even though Son still believes WeWork will eventually make money,
he has admitted that the $9 billion bet was a mistake.
Why a mistake? Well, the latest reports value WeWork at,
get this: 2.9 billion dollars, when just last year it was 47.
That has been Son's answer when VC funds call his tactics too aggressive,
looking to control all the companies under the Vision fund.
But, according to experts, the problem is about
the size. Business professor Steven Kapplan explained, per the Economic Times:
We've seen this story before. Investment floods into business ideas like driverless
cars and robotics; the price then spikes, and everyone wants a piece of the pie.
Until it all collapses. Like the dot-com bubble.
And it's not Softbank's investments hover around the $100-million mark. That's the starting point,
and most investments are $500 million to a few billion, in exchange for up to 40% of the company.
Softbank has shown no signs of slowing down with colossal funding rounds.
The company's rampant attitude has forced other VCs to have to up their game.
In the startup world, it seems the Softbank way is the only way.
And, when we look at Son's life, we understand. He's always aimed to be the biggest name in the
business. When he started his company, it had only two part-time employees.
A minuscule company, but Son had already built a 50-year plan
for it and had told the pair of lonely laborers that, within five years,
he'd have $75 million in sales. Thinking their boss was crazy, they quit. He didn't.
But such big visions have faced some grave adversity.
Such a massive enterprise will always be in the public eye, especially when one of the most
prominent investors is knee-deep in controversy. The Saudi Arabian Kingdom was vital in creating
the Vision Fund back in 2017, with initial funding of $45 billion of the $100 billion.
And this was the same Kingdom
tied to the controversial disappearance of Saudi-American journalist Jamal Kashoggi,
at a Saudi Arabian consulate in 2018. Accusations of murder erupted, and political chaos ensued.
Softbank's share plunged after international pressure on Saudi Arabia
intensified. Many big names in the business world pulled
out of an investment conference in Saudi Arabia just weeks after the murder.
But it took Softbank up to the last minute to pull out of the conference,
maintaining a low profile throughout the crisis.
Masayoshi Son spoke to the press in November and quietly referred to the fund's integrity as the
"there may be some impact" and reiterated their relationship with the Kingdom.
Well, yeah. Saudi Arabia gave them $45 BN, of course, they can't just walk away.
These past months have shaken Softbank: the WeWork fiasco, Uber, and OneWeb not performing well,
and the health crisis. By the first quarter of 2020, Softbank reported $24 billion
in losses, out of which, $17 BN were due to the Vision Fund.
And news within the company wasn't positive. Son reported that he expected 15 of the 88
companies in the Vision Fund to go bankrupt. But he quickly downplayed the situation,
highlighting that Softbank would direct cash originally destined
for those failed projects towards other, more profitable investments. Meanwhile,
the company announced buyback schemes that would help them reduce debt.
Plus, the health crisis certainly didn't help. Who would use businesses like Uber,
WeWork, and many of the other investments?
Media jumped at the flailing prey. Softbank's monopoly of the investment world and unethical
practices to beat out the competition had come back to bite them. The company was crashing.
Theodore Karrisk, a financial adviser, considered that SoftBank was a bad investment for everyone,
in the way it was conceived and executed
So, is this the end? Well, no. Just months later,
Softbank clawed its way back. How? Well, some of its investments paid off.
Take Uber. While some people weren't sharing rides, they were undoubtedly
using the delivery service Uber Eats, which spiked Uber's stock 11% in the second quarter,
which raised the value of other companies like Didi, another of Softbank's investments.
Then there are investments on pharma and insurance, which have seen an increase in
stock value, especially in these critical times. Plus, as the Federal Reserve and the
Bank of Japan have begun buying debt, which aided the oscillating company.
As, per the NY Times, by the beginning of August,
SoftBank declared a $12 BN net profit in the second trimester.
Softbank has shaken up the investment world and has lost billions in the process. But when
one of those gambles pays off, they are riding high. So, as long as it keeps up with this game,
the world will have to follow.
What do you think about this Softbank craziness? Which of their companies is your favorite?
Let us know in the comments. We'll see you next week.