SoftBank founder aims to create ‘ecosystem’ of companiesStrategy of new ‘operating group’ is combination of venture capital and private equity
Dozens of tech-company founders and chief executives will gather in Los Angeles next month for a private gathering that is elite, even by Silicon Valley standards. The price of entry: selling a stake in your company to SoftBank’s Vision Fund.
The two-day event will mark the first time since the Japanese group’s $100bn investment fund was launched in 2017 that all the leaders of its portfolio companies have come together in the same place, at the same time.
As SoftBank embarks on a new fundraising round of its own, to raise another $108bn for a second Vision Fund, the LA meeting is part of SoftBank founder Masayoshi Son’s ambition to create an “ecosystem” of companies that can collaborate to accelerate growth — and its own returns.
The LA event is organised by a little-known team within the Vision Fund — the “operating group” of more than 30 former executives working from SoftBank offices around the world to advise its portfolio companies on areas such as growth and international expansion.
The operating group was founded just over a year ago and is led by Gerry Lopez, a former executive at AMC Entertainment, the movie-theatre owner, hotel chain Extended Stay America, and Starbucks.
The strategy is an unusual combination of Silicon Valley-style venture capital and traditional private equity. Unlike PE firms, SoftBank typically owns a minority stake in Vision Fund companies.
“This is not PE, so we can't command like that,” said Mr Lopez. “This is companies working together because we make the right introduction to the right person at the right level in the company to his or her counterpart in another company.”
Despite the Vision Fund’s focus on innovation, Mr Lopez himself has no background in the technology industry. Instead, he brings 30 years’ experience working at big consumer-facing companies, often backed by private equity, and then taking them public.
“Some of our younger entrepreneurs, they don't know what the hell Sarbanes Oxley is,” Mr Lopez said, referring to the US accounting controls introduced in 2002.
‘This is not PE’
For many portfolio companies, the clearest benefit of being part of the Vision Fund is the fast ticket to global expansion. With a series of investments from SoftBank, Oyo, the fast-growing hotel chain founded in 2013, has expanded from its home market in India to China, US, Japan, Saudi Arabia, and 10 other countries. The group is on track to overtake Marriott as the world’s largest hotel group within three months, according to Mr Son.
“Once the Vision Fund invests in a company, that company is poised to become a market leader if it isn’t one already,” said Navneet Govil, the Vision Fund’s chief financial officer.
The growth is backed not only by Vision Fund’s immense capital. Joining the ecosystem means gaining access to SoftBank’s army of sales staff in Japan and local expertise through its investments in Yahoo Japan and China’s Alibaba.
Already, WeWork, Didi Chuxing, the Chinese ride-sharing group, and Paytm, India’s biggest mobile payments company, have formed joint ventures with SoftBank in Japan, where they are expanding rapidly.
Vijay Shekhar Sharma, the founder of Paytm, said he is in talks with other Vision Fund companies to collaborate, after its technology platform was used when SoftBank and Yahoo Japan launched their mobile payment service in Japan last year.
“If there is a commercial deal that will happen between two portfolio companies, it will be faster and easier than a non-portfolio company,” Mr Sharma said.
While SoftBank is looking for synergies in areas from financial services to using WeWork’s shared office space, its many investments in the transportation sector make it a particular focus for dealmaking.
In December, SoftBank invested $1bn in a parking-technology start-up called ParkJockey. In June, the company rebranded as Reef, unveiling plans to turn its network of car parks into hubs for ride-hailing, “virtual restaurants” for food delivery services, and garages for autonomous cars.
While Reef’s kitchens supply other food delivery companies such as Postmates and GrubHub, Ari Ojalvo, Reef’s chief executive said he had “closer relations” with SoftBank-backed DoorDash and Uber Eats.
“It means you're able to have a much more constructive discussion around the realities of the business,” Mr Ojalvo said. “It doesn't feel like you're sitting on two sides of the table, with people holding their cards close to their chest.”
But SoftBank’s wide-ranging bets on transportation also present potential conflicts. Uber Eats and DoorDash may both collaborate with Reef but they also compete fiercely with one another across North America.
Jason Droege, head of Uber Eats, is cautious on the idea of striking a deal with another company just because they were part of the SoftBank portfolio.
“Any of the partnerships we look at, we treat them equally, independent of who their investor base might be,” he said. “We look at who is the right partner for Uber — that's how we evaluate it.”
Internal competition
Mr Lopez says competitive overlaps are a “trade-off” of SoftBank’s less controlling model. “In my view, if that is a cost we pay for freedom and entrepreneurs operating in an environment that is more valuable and open to them, that's not a huge cost to pay,” he said.
For now, many of the ideas for potential collaboration between Vision Fund companies remain at the discussion — or even conceptual — stage. SoftBank’s operating group itself is growing almost as fast as its investments: Mr Lopez says his team will number more than 70 people by the end of the year.
In the meantime, however, investors have yet to appreciate the additional value creation SoftBank is envisioning through the Vision Fund — to the frustration of Mr Son. At a recent earnings presentation, he noted the wide gap between the value of its equity holdings — at ¥21tn ($198bn) minus its net debt — and its current market capitalisation at ¥10.5tn.
“Our image remains a telecommunications company with a lot of debt. But we’re no longer that,” Mr Son said. “Can you please take another look at our company?”