How SoftBank, World’s Biggest Tech Investor, Throws Around Its Cash
SoftBank is on a shopping spree, investing billions in firms such as Uber and WeWork, both directly and through an affiliated tech fund
Tech magnate Masayoshi Son often befuddles people in his industry with the large sums he is willing to pay for stakes in companies.
That includes his directors.
Shigenobu Nagamori says he objected when Mr. Son, chief executive of SoftBank Group Corp., told his board in 2016 he wanted to pay $32 billion for Arm Holdings PLC. The U.K. chip-design firm was worth a 10th of that, Mr. Nagamori, then a SoftBank outside director, says he told Mr. Son.
Mr. Son paid it anyway. And he continued a buying spree, picking up stakes in dozens more companies, many of them “unicorns”—startups that have grown to valuations over $1 billion—such as Uber Technologies Inc. and WeWork Cos. In some of those deals, too, he had to argue with directors and advisers who thought he was paying too much.
Investors want to understand just how Mr. Son goes about deciding on his billions of dollars of bets, among the largest in the tech industry, which he does through SoftBank and affiliated investment funds. Current and former SoftBank directors, executives, investing partners and others who know Mr. Son give a glimpse into how he works. It appears sometimes methodical, sometimes haphazard.
They describe a man who sometimes makes gut-instinct decisions in businesses he knows little about—such as the time he spent about 30 minutes deciding he wanted to invest $200 million in a startup that grows vegetables indoors. Other times, he compiles an elaborate analysis, inundating his directors with hundreds of pages of documents to help explain an investment target.
To strike quickly, he sometimes commits to investments before getting approval from his fund’s investment committee, some of these people say. And he often spars with his executives and board members over his proposals until they are convinced or acquiesce.
“I’ve opposed almost all of Mr. Son’s proposed investments,” says SoftBank director Tadashi Yanai, president of Fast Retailing Co. , operator of Uniqlo clothing stores. Instead of acting like a speculative investor, he says, Mr. Son should focus on “real business.” Mr. Yanai has publicly said his role is to tell Mr. Son things that are painful to hear. He and Mr. Nagamori have publicly praised Mr. Son’s vision and drive, saying they support him despite reservations on investments.
Understanding the 60-year-old Mr. Son matters because of his outsize impact. SoftBank, his Tokyo-based tech-investment-and-telecom firm, has led investments totaling about $145 billion in companies since 1995, according to deal tracker Dealogic, including $22 billion to buy U.S. mobile carrier Sprint . He wields the world’s biggest technology fund, the $92 billion Vision Fund, and a $6 billion affiliate, brandishing investments that often make him a company’s biggest shareholder.
Last year, he spent around $37 billion on more than 40 companies, according to Dealogic. Among them was Uber, on which SoftBank spent about $8 billion for a roughly 15% share.
Many in tech finance believe his investments help keep startup valuations high. “We all thought the unicorn stuff was going to start slowing down,” says Tim Connors, founder of the Silicon Valley venture-capital firm PivotNorth Capital. “Then along comes SoftBank and lobs another $90 billion into what many people thought was already an overheated market.”
His money makes waves beyond tech. SoftBank is in talks to buy into reinsurance giant Swiss Re AG in a deal that could be valued at $10 billion or more, The Wall Street Journal reported this month.
SoftBank declined to make Mr. Son available for an interview. In November, he told the Journal SoftBank does due diligence to ensure its investments’ valuations are appropriate.
“Mr. Son’s activities, including the Vision Fund, are extremely prominent and flashy, and it makes people think he’s taking on a huge amount of risk,” says Yasuhiro Sato, CEO of Mizuho Financial Group, SoftBank’s main bank. “I can guarantee that we’ve been monitoring the risk very carefully.”
Outlook: ‘300 years’
Mr. Son has said his goal is to take big stakes in a coalition of companies driving technological change that will help the group sustain growth for “300 years.” He told reporters this month because the Vision Fund invests in unicorns and companies that are No. 1 in their markets, he expects “extremely high growth” from them.
Arm CEO Simon Segars, a SoftBank director, says Mr. Son’s investments often are in companies that collect large amounts of data on how people live, work or move. “I can look at the majority of those investments that have been made and say, look, the data angle is this.”
A Japanese of Korean descent, Mr. Son attended the University of California, Berkeley, and in 1981 founded SoftBank as a software distributor. He led its investments in more than 1,300 companies, sometimes on gut instinct. He often recounts deciding to put $20 million in a fledgling Chinese e-commerce firm named Alibaba in 2000 because of the “sparkle” in CEO Jack Ma’s eyes—a stake now valued at about $120 billion.
He survived a close call in the dot-com bust after 1999, when many startups he bought into went bust and SoftBank lost 99% of its value. He recovered, moving into broadband and mobile phones. SoftBank is now Japan’s No. 7 company in revenue, according to S&P Global Market Intelligence.
Venture investor David Chao says it took Mr. Son just around half an hour in a 2017 meeting to decide to back Plenty, a South San Francisco startup that grows vegetables indoors. Mr. Son was skeptical before the meeting, says Mr. Chao, an early Plenty investor. He gave Mr. Chao and Plenty CEO Matt Barnard 15 minutes to make their case at Mr. Son’s Woodside, Calif., residence.
Mr. Chao says he brought a 7-foot growing wall—the vegetables are produced on them—cutting off lettuce and mustard greens for Mr. Son to try. Mr. Son quizzed Mr. Barnard and listened to his plan for indoor farms in the U.S.
Soon, Mr. Son was lecturing him to think bigger, suggesting the company expand abroad. “The next thing you know, it’s like: ‘How much do you need and let’s get this deal done,’ ” says Mr. Chao, general partner of DCM Ventures, in which SoftBank has a minority investment. “He doesn’t let capital be a constraint.”
Four months later, Mr. Son invested around $200 million—twice what Plenty had asked for, Mr. Chao said.
A Plenty spokesman declined to make Mr. Barnard available for comment.
Mr. Son has publicly praised Plenty for using artificial intelligence and “Internet of Things” technology—featuring networks of sensors and computing chips.
Mr. Son’s willingness to make quick bets surprised CEO Eugene Izhikevich of San Diego artificial-intelligence company Brain, which is developing self-driving technology. In May, Mr. Son asked how much it would take to speed Brain’s rollout, Mr. Izhikevich says. Within two months, SoftBank had invested $114 million through the Vision Fund. “Something I thought would take 10 to 15 years,” he says, “now I can achieve three to five times faster.”
Often, Mr. Son will rough out deal terms on his own, leaving little for SoftBank and Vision Fund deal teams to do, people familiar with the investments say.
He launched the Vision Fund in 2017, with funds from SoftBank and investors such as Saudi Arabia’s Public Investment Fund. The fund has its own investment committee, including Mr. Son, that approves deals. Some of its biggest deals are also brought before SoftBank’s board.
The line between SoftBank and the Vision Fund isn’t always clear. SoftBank units advise and manage the fund. SoftBank must offer deals of $100 million or more to the Vision Fund.
To move fast, Mr. Son sometimes agrees to deals first and passes them to the investment committee for approval later, say people familiar with the process. SoftBank’s Uber investment, for instance, hasn’t yet been approved by the Vision Fund’s committee, although SoftBank has said it plans to transfer it to the fund.
Board persuasion
Other times, Mr. Son researches his targets extensively, spelling out scenarios for how the investment will play out. When he pitches deals to his SoftBank board, says Mr. Nagamori, the former director, he often gives it hundreds of pages of documents in advance.
Mr. Son can go “on and on” explaining his conclusions if directors challenge him, says Mr. Nagamori, CEO of precision-motor maker Nidec Corp., who says he resigned in September because it consumed too much time. “If you want to lodge a proper challenge” to Mr. Son, he says, “you need to really study up—it takes a tremendous amount of time.”
In some deals, SoftBank executives and directors have told Mr. Son they thought he was overpaying, say people with knowledge of those conversations.
In 2015, Mr. Son wanted to buy Arm, which designs chips for products ranging from smartphones to networked cars. Several SoftBank executives told him SoftBank didn’t have the financial strength to buy Arm, persuading him to raise cash by selling some holdings first, people familiar with the discussions say. “It was like pulling teeth,” one says.
By mid-2016, Mr. Son had raised the money and tracked down Arm’s chairman on a yacht in the Mediterranean to propose the deal, says Mr. Segars, Arm’s CEO, who was present.
Mr. Son’s projections to support his $32 billion bid included a prediction that Arm-designed networked chips would dominate the market, which Mr. Nagamori says he considered too optimistic. “I said, ‘Some competitor is bound to emerge, so you can’t pay such a high price.’ ” He eventually relented, although he says he remains unpersuaded about the valuation.
“From the outside, some of the moves are riskier moves than most companies would take,” says Mr. Segars. “But history has shown that he’s been right more often than he’s been wrong.”
At a 2017 shareholder meeting, Mr. Son said it was natural for directors to have different opinions and dissent was a sign of healthy management.
Price concerns also emerged during Mr. Son’s WeWork approach. The company, which rents out shared office spaces, was pitched to SoftBank executives in early 2015. It was valued at around $5 billion then, estimates Dow Jones VentureSource, which tracks venture-capital data.
SoftBank’s investment head at the time dismissed the pitch because he didn’t see WeWork as a tech company and worried it was too expensive, especially given SoftBank’s weak finances at the time, say people familiar with the discussion.
In January 2016, with WeWork’s valuation at $10 billion, Mr. Son met CEO Adam Neumann and was intrigued by his vision of how work would evolve, says WeWork Japan CEO Chris Hill. Mr. Son told Mr. Neumann he was moving too slowly, and he responded that WeWork needed “fuel,” Mr. Hill says. WeWork declined to make Mr. Neumann available for comment.
A year later, Mr. Son was considering investing more than $1 billion, the Journal reported. Most SoftBank directors were opposed, telling him they didn’t understand why SoftBank should invest in what they viewed as essentially a real-estate company, say people familiar with the discussions. Some SoftBank executives thought WeWork’s valuation, then $17 billion, was excessive, says one.
Mr. Son prevailed, leading SoftBank and the Vision Fund to invest $4.4 billion in WeWork in 2017, boosting its valuation to around $20 billion. “Mr. Son has his own ideas,” says a SoftBank executive who says he sees his job as telling the CEO his qualms while also supporting him.
Mr. Son’s buying spree continues. In January, the Vision Fund put $300 million in Los Angeles-based dog-walking app Wag Labs Inc. During a press conference, he called it “Uber for dogs.”
It also invested €460 million ($562.7 million) in German online used-car dealer Auto1 Group. Mr. Son urged it to take more money than it had planned and “think bigger,” says Matt Krna, managing partner of tech-investment fund Princeville Global, which introduced Auto1 to SoftBank a few months ago. Auto1 declined to comment.
“Anyone can be optimistic,” says Mr. Krna. “Masa really makes enormous bets on his beliefs.”