SoftBank is an enigma many have tried to decode.
It has shaken up the tech and VC world because venture capital has never been this audacious in its vision and quick and massive in its scale.
SoftBank recently announced that they have invested about $70 billion of the $100 billion Vision Fund with more to come soon (read our recent analysis of Sofbank’s $1.46B investment in Grab).
Just think about it – all US VCs put together raised around $143 billion between 2014-2017. SoftBank’s Vision Fund alone nailed down close to $100 billion in less than a year.
While decoding SoftBank, one immediately thinks of Masayoshi Son. The charismatic maverick is the face of the company and the fund. But what about the remaining personnel and how are decisions regarding capital allocation made?
Who are the other decision makers?
A common perception in Silicon Valley is that Softbank is made up of banking executives who have very little insight into the startup world and how they work.
Well, they are right about the banking part.
The Vision Fund has eleven partners based in California, London and Tokyo and almost half of them are former bankers.
The most prominent of them is Rajeev Misra, the CEO and primary investment advisor to the Vision Fund. He brings in decades worth of experience from Wall Street where he worked with top firms such as Merrill Lynch, Deutsche Bank and UBS. The top lieutenant, often called a creative genius, was handpicked by Son and is likely to be the next-in-line when Son hangs up his boots.
Other prominent partners include Saleh Romeih (former MD at Goldman Sachs and Deutsche Bank in Singapore), Colin Fan (former head of Deutsche’s investment banking and trading unit), Kentaro Matsui (advised Softbank on major acquisitions such as Vodafone; now focuses on the fund’s investments in Fintech, Health Tech, Asia region, etc), and Goldman Sachs alum Michael Ronen (he apparently went to pitch investment ideas to Son but instead was at the receiving end of a pitch by Son to join Softbank) – and they are all from the banking world.
Apart from partners, the fund has also routinely poached analysts and associates from the M&A teams of investment banks- especially by Rajeev Misra who has been leveraging on his former networks.
Why is the leadership mainly helmed by bankers?
The dizzying pace at which the fund has been deploying its capital needs aggressive dealmakers who can make quick negotiations in later-stage deals. This makes them a great fit. Misra was known to be the most aggressive investor at Deutsche but he adds that “compared to Masayoshi, I’m conservative.”
However, bankers don’t necessarily have the requisite experience to serve on the board of startups and work closely with founders.
The partners also include other figures like Deep Nishar (former head of product at Google and LinkedIn), Praveen Akkiraju (a former executive at Cisco Systems), Jeff Housenbold (MD of Vision Fund; previously from Shutterfly, he led investments from Softbank in dog-walking app Wag) and Greg Moon (he worked for Son since 1996 to help out with investments in Silicon Valley and the VC arm in South Korea).
These partners are known to spend months getting to know founders and companies closely. Jeffrey Housenbold heads the efforts to build a systematic and efficient way to track emerging startups in order to identify their next investment target.
How are decisions made?
Son is known to often make quick, impulsive bets without getting approval from the fund’s investment committee. For instance, he took 20 minutes to decide to invest $200 million in Plenty, an indoor vegetable farming startup.
On more methodical deals, he is known to make hundred page long documents to persuade the committee on his proposal. He often engages in long debates and arguments until the executives are convinced. It is said that investments north of $3 billion require a nod from Vision Fund’s investors. However, the fund manages investments as and when it sees fit.
There are also instances when he is forced to reconsider his interest in a company after the team makes a case that the company can’t really scale or if they find another player with a better team, tech, strategy and execution. “If you know your stuff and it’s fact-based, he’s very open to changing his opinion”, said a partner.
In the bottom-up decision-making process, managing partners usually have teams with dedicated focus areas. If a team is intrigued by a deal, they conduct thorough research and come up with an investment thesis. If the team has a strong conviction, it is then taken to other managing partners.
Partners have weekly meetings on a global deal call and they decide which entrepreneurs to zero in on for a meeting with Son. Son meets every entrepreneur they decide to invest in (usually in the swanky Japanese office). If a startup gets the green signal from Son, the investment committee conducts confirmatory due diligence before closing the deal.
Power play within SoftBank
Like most companies, Softbank is no stranger to internal power battles. When you hire strong personalities to drive a company, ambitions are bound to clash.
And this was what was reported to have happened between top lieutenants Rajeev Misra, who oversees the Vision Fund and COO Marcelo Claure who manages the operations of the SoftBank portfolio.
They apparently clashed from the beginning due to different working styles and since the lines between SoftBank and Vision Fund are blurred with portfolio overlaps, the decision-making powers too gets confusing.
It is said that Claure faced friction with regards to managing operations of the Vision Fund and ultimately it was decided that Misra, and not Claure, would oversee operational synergies at the Vision Fund.
It seems that Claure’s consolation prize was the recently announced US$5 billion fund focused on Latin America, his home turf (Claure himself hails from Bolivia).
Investing is no exact science, an art nevertheless
When Son had announced plans for a $100 billion Vision Fund in 2016, many in the tech world raised sceptical eyebrows. People still do.
He has often been criticised for striking deals at SoftBank and then transferring them to the Vision Fund at an inflated valuation.
Furthermore, the current spending spree obviously means that they will need to raise another Vision Fund soon. However, there is a lot of uncertainty regarding this since sourcing for this scale of capital won’t be easy. There are not many options for limited partners and it may have to rely on government-backed investors like Saudi PIF. With the results of first vision fund not apparent yet, it might take some convincing for people to put big money again.
Whatever the criticisms and challenges, one can’t deny that SoftBank is a force to reckon with that is revolutionising investments, consumer trends, and technology at a massive scale.
And one can’t undermine Son’s investment acumen – he’s the same guy who minted $120 billion in returns from an early $20 million bet on a then less known Alibaba.