Here's everything we know about how startups raise money from SoftBank's $100 billion Vision Fund

• Some of the biggest and most promising tech companies in the world including Uber, WeWork, Indian ecommerce giant Flipkart and TikTok owner ByteDance have raised billions from a single, massive investor — SoftBank's Vision Fund.
• The Vision Fund is the biggest tech investor in the world. It has $100 billion to spend from backers including Apple, Qualcomm, and controversially Saudia Arabia's sovereign wealth fund the PIF.
• The fund has so much money to spend that peer investors think SoftBank is inflating an existing tech bubble. Its connection to Saudi Arabia is also contentious given the assassination of journalist Jamal Khashoggi in Turkey last year.
• But startups still seem to be queueing up to receive the Vision Fund's money. Here's what we know about how they went about it, and what it's like to be part of the fund's portfolio.
• Click here for more BI Prime stories.

Some of the most valuable tech companies in the world right now might be a lot less valuable if it wasn't for a single investor — SoftBank's Vision Fund.

The $100 billion Vision Fund has poured money into TikTok parent ByteDance, ride-hailing firm Uber, and office-sharing firm WeWork. ByteDance is now the most valuable private tech startup in the world, a title also once held by Uber before it floated.

SoftBank's critics question how sustainable it is to flood fast-growing companies with hundreds of millions of dollars. That criticism looks pertinent as its portfolio firm WeWork lurches towards an IPO with a lower-than-expected valuation and as SoftBank's Uber stake goes underwater. There are additional questions about SoftBank's major backer, Saudi Arabia's Public Investment Fund, after the appalling murder of journalist Jamal Khashoggi. 

Even so, there appear to be few startups bold enough to turn down SoftBank's cash.  As Uber CEO Dara Khosrowshahi put it last year, per a report from Vox: "Rather than having their capital cannon facing me, I'd rather have their capital cannon behind me, all right?"

Yet how startups pitch SoftBank's investors and partners in London, Asia, and the US is a bit of a mystery. Here's everything we've gleaned on what it takes to raise those millions.

SoftBank is a Japanese conglomerate which operates in telecommunications, media, and many other industries

SoftBank is a multinational, Tokyo-based tech conglomerate that operates across a wide range of industries, including telecoms, e-commerce, media, finance, and more.

Founded in Tokyo in 1981 by Masayoshi Son, its CEO and chairman, SoftBank began life as a store selling packaged computer software.  Despite having no software to sell, Son sealed contracts with both electronics retailer Joshin and Japanese software developer Hudson. By 1984, he controlled around half of the Japanese retail market for computer software.

All the while, Son had built a successful media arm for his business. By 1994, SoftBank published some 20 computer magazines and hundreds of computer-related books. The firm had also delved into telecoms, selling a least-cost routing device for telephones.

In 1994, it went public, and five years later – after continuing to make numerous media and internet-related investments, including the purchase of a controlling stake in 'Yahoo! Japan' – it became a fully-fledged holding company.

Today, SoftBank is arguably best-known for its $100 billion 'Vision Fund', the largest tech-focused venture capital fund in the world, through which it has invested in the likes of Uber, WeWork and ARM. More on this in the next slide...

SoftBank Investment Advisers runs SoftBank's massive investment fund, the $100 billion Vision Fund

Launched in November 2016, SoftBank's $100 billion 'Vision Fund' is the largest tech-focused venture capital fund in the world.

As the brainchild of Masayoshi Son, the Fund is aimed at realising Son's grand vision for humanity and the idea that AI will play an increasingly fundamental role in people's lives across the next 300 years.

The Fund's cash comes from multiple sources, with the Saudi Public Investment Fund the biggest contributor, having committed $45 billion to the project. The UAE's Mubadala Investment Company – which is also state-owned – has committed $15 billion, with SoftBank itself contributing $25 billion. Apple also pledged $1 billion to the Fund.

To date, dozens of firms have received its cash, across sectors including fintech, health tech, enterprise software, transportation, and more. Though the Fund has made multi-billion dollar investments in the likes of Uber and WeWork, it has also ploughed major cash into lesser-known startups such as UK fintech OakNorth and Latin American delivery app Rappi. 

 

 

And SoftBank is raising another $100 billion fund

In July, SoftBank announced its $108 billion 'Vision Fund 2'. As with the first Fund, SoftBank says the purpose of Fund 2  is "to facilitate the continued acceleration of the AI revolution."

The Fund 2's expected backers include tech giants Apple and Microsoft, as well as investors from Japan, Taiwan, Kazakhstan, and elsewhere. SoftBank itself has pledged to contribute $38 billion, some $13 billion more than it pledged towards the first Fund. 

On the flipside, the biggest backers of its original Fund, Saudi Arabia's Public Investment Fund and the UAE's Mubadala Investment Company, do not appear as committed to Fund 2. According to Bloomberg, both are  reconsidering their involvement in Fund 2 in the wake of WeWork's shelved IPO last week. 

Whether or not this affects Fund 2's investment clout remains to be seen, but analysts told Business Insider earlier this month that Fund 2 isn't necessarily in trouble. 

Masayoshi Son, SoftBank's CEO, is the driving force behind the Vision Fund

As its founder, CEO and chairman, Masayoshi Son is SoftBank's all-in-one grand visionary, driving force, and public face.

Son was born in 1957 in a small town on the southern Japanese island of Kyushu, to second-generation Korean parents. Though his family was poor, and his Korean heritage left him open to discrimination, the young Son was not deterred.

Aged just 16 and speaking no English, he emigrated to San Francisco after encouragement from McDonald's Japan founder, Den Fujita. He transferred to the University of California at Berkeley to study economics after two years at a local college.

Before he'd reached the age of 21, Son has sold his first company, a multilingual translator bought by Sharp for roughly $1 million. Graduating from Berkeley in 1980, Son founded SoftBank the following year.

As a result of SoftBank's ascent, particularly its impact on the burgeoning Japanese internet, Son gradually became a household name in Japan. His rags-to-riches life story – Forbes puts Son's net worth at over $20 billion – has given him a celebrity status his famed charisma only serves to enhance. On the subject of his charisma...

 

 

 

Son is idiosyncratic for a man overseeing a $100 billion fund and likes to quote Yoda before signing deals

A surprising influence on Son's dealmaking is none other than Yoda, the small green alien sage of "Star Wars" fame. According to a profile of Son in the Financial Times, Son often quotes the fictional character before signing off on deals, and likes to "feel the force."  

At an event in Tokyo last May, Bloomberg quoted him as saying: "Yoda says use the force. Don't think, just feel it." Son reportedly then explained that intuition factored into his decisions about which firms invest in.

Son's penchant for quoting the small green sage has rubbed off on the Vision Fund's portfolio of startup CEOs, too. In an interview with Business Insider in May, WeWork CEO Adam Neumann revealed that he and his wife Rebekah refer to Son as 'Yoda'.

"She likes him a lot. She calls him 'Yoda'," Neumann said.

In the same interview, Neumann even said Son was Yoda's real-world incarnation. "[Son] is Yoda. He has the Force with him," the 40-year-old said.

It's thought that Son has ultimate sign-off on big deals, but the Vision Fund is run by a number of venture investors and former Deutsche Bank executives

You can see our rundown of the some Vision Fund's key players here. 

When it comes to pitching any of these execs for SoftBank's money, only fast-growth startups looking for serious money need apply

There are some exceptions, but for the most part the Vision Fund only invests in fairly established, fast-growing businesses. It's rare for the fund to invest anything less than $100 million, as evidenced by this running list of deals.

 

SoftBank can be proactive about approaching startups about funding, but it also relies on introductions

How SoftBank actually comes to invest in startups varies case by case.

The firm has employed bankers to help it source deals, people familiar with the matter told Business Insider.

It also relies on so-called "warm" introductions from trusted investors. Gym membership startup Gympass was introduced to Vision Fund investors by one of the startup's existing backers, Atomico.

Improbable, the British gaming tech firm that raised $500 million from the Vision Fund in 2016, told Business Insider in 2017 that it came across the Japanese firm while it was in the process of raising funding. Improbable has also raised from Andreessen Horowitz.

In other cases, SoftBank has approached founders directly.

WeWork CEO Adam Neumann said he had only 12 minutes to win Masayoshi Son over

If anything illustrates the uncertainty surrounding SoftBank's dealmaking processes, it's Son's initial meeting with Adam Neumann.

According to Wired, the WeWork founder and CEO invited Son to visit his offices after first hearing of SoftBank's interest in WeWork. Neumann was told by Son's team he'd get a 2-hour meeting with Son to seal the best possible deal. 

However, on the day of the meeting, Son's team informed Neumann that Son was running late. So late, in fact, that when he arrived, only 12 minutes of the allotted 2 hours remained. What did Son do? No, he didn't offer to rearrange the meeting – instead, he told Neumann he had 12 minutes to win him over...

SoftBank's initial deal with WeWork was forged on an iPad

Neumann and Son ended up thrashing out a deal on Son's iPad, en route to the SoftBank founder's next meeting.

According to Wired, Neumann said he would normally have tried to wrangle for a better deal but decided against it.

He promptly told Son:"Today, I'm not a negotiator," and signed his name, plus Son's name, thereby sealing the investment deal. Wired added the deal was agreed with both SoftBank Group and the Vision Fund, comprised a $3 billion investment into WeWork, plus a $1.4 billion outlay into 3 new firms: WeWork China, WeWork Japan and WeWork Pacific.

That rushed meeting was convincing enough to ensure SoftBank would provide most of WeWork's $10 billion funding to date

Founders who accept SoftBank's cash suddenly gain access to a roster of experienced super-founders, like Didi Chuxing's Cheng Wei

A major draw for founders considering taking SoftBank cash is its existing roster of portfolio firms.

Masayoshi Son tries to foster close ties between the CEOs of the various firms and for younger founders, this is a godsend.

Ritesh Agarwal is the 24-year-old CEO of Indian hotel chain startup Oyo. Oyo has raised more than $1 billion in funding and counts SoftBank as a major backer.  A college dropout, Agarwal is still pretty early into building a company, with all the risks that entails.

He told Business Insider last September that he has turned to another SoftBank founder, Didi Chuxing's Cheng Wei, for inspiration. Didi Chuxing is China's equivalent of Uber. 

"It's not just sharing that feedback," Agarwal said. "It's about working with us, and the broader family of the Vision Fund, which has top companies in every segment worldwide, to help us gain knowledge, and how to share our proprietary knowledge... that's the group you become part of."

Founders view the possibility for collaboration with other portfolio startups as a major perk of receiving SoftBank's investment

Part of what makes SoftBank appealing to founders is the ability to do business with other SoftBank-funded startups.

According to a Financial Times article from August, Paytm founder Vijay Shekhar Sharma said he is talking to other Fund companies to about collaborating, after SoftBank and Yahoo! Japan used its platform when launching their Japanese mobile payment service in 2018.

"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 reportedly said.

Reef is a SoftBank-backed parking technology startup formerly known as ParkJockey, that also runs dark kitchens for food delivery firms.

While Reef's kitchens supply food delivery firms such as Postmates and GrubHub, Reef cofounder and CEO Ari Ojalvo said he had "closer relations" with SoftBank-backed DoorDash and Uber Eats, according to the same FT report.

 

 

Some founders even insist that SoftBank facilitates ties between its other portfolio firms before accepting its cash

In one instance, a startup CEO insisted that SoftBank made these types of introductions before he would accept the Japanese firm's cash.

Cesar Carvalho is the CEO of Gympass, an online platform that gets workers into the gym. In June, it raised $300 million in a Series C funding round led by the Vision Fund.

That same month, Carvalho told Business Insider he only accepted SoftBank's investment on condition that the Vision Fund facilitated ties between Gympass and the Fund's other portfolio companies.

As a result, Gympass counts both Uber and WeWork among its customers, giving it instant access to millions of employees, drivers, and shared office members and, presumably, a revenue boost.

Other founders walk into meetings with SoftBank with no intention of pitching for funding...

In August 2019, SoftBank said it had invested $200 million into C2FO, an online marketplace for small businesses to post their invoices at a discount. Speaking in the wake of the announcement, CEO Sandy Kemper told Business Insider that it was SoftBank themselves who first floated the idea of investment.

C2FO had arranged a first meeting with SoftBank to discuss which of SoftBank's portfolio companies to partner with.

SoftBank had apparently expected C2FO to pitch for SoftBank's investment – and were "puzzled" when Kemper did not pull out a pitch deck.

"The idea was very much, initially, let's find a way to create more net profit and gross margin for the portfolio of companies of SoftBank's, so that the valuation of those companies goes up," Kemper said.

But when SoftBank realised Kemper was not going to pitch them, they took immediate action...

SoftBank quickly came to an agreement to invest in C2FO

"[SoftBank] then immediately said: 'Well, we're going to help with revenue generation — we're going to darn sure have an investment in the company,'" continued Kemper.

"[The process] was quite detailed and very thoughtful, but also very rapid. We moved faster with them than we moved with any of the other [investors we've had]."

Kemper added that everything was agreed by the end of June, with the investment publicly announced in early August. The whole process took place in "weeks."

"We came to a very friendly term sheet that I think is somewhat typical for SoftBank from what I understand: very founder-friendly; very focused on the potential of the company. They did it very quickly, even though there were mounds and mounds of details that we went through.

"To be in a position where we had a verbal [agreement] - a look in the eye and and handshake about what was going to get done - was truly a matter of weeks."

 

Son treats the Vision Fund's portfolios like a giant family, hosting dinners for the founders

Masayoshi Son meets regularly with the CEOs of every companies his Vision Fund invests in. Of course, that's nothing out of the ordinary for a VC – indeed, it's par for the course.

Yet what really marks Son out is the way he encourages his CEOs to meet each other. According to CNBC, he hosts dinners for all his CEOs every few months, to facilitate deals between the Fund's portfolio companies and create a SoftBank "ecosystem."

Stefan Heck, the founder of SoftBank-backed firm Nauto who was interviewed in the CNBC piece, said these meetings take place in various locations across the US and Japan.

 

Son, when he meets founders, "doesn't waste time" when speaking with founders and insists on speaking English

Speaking to Business Insider in June, Brain Corp CEO Eugene Izhikevich revealed that Son is not just about grand visions and group collaboration. He is personable to his CEOs, too.

"Every time I go to Japan I have meetings with him and we just share stories and talk about the future," Izhikevich said. "I have this vision of robots taking care of us, and it turns out he had the same vision before me. So when I met him, it was like meeting my biggest soulmate with respect to how we see the world."

Nevertheless, Izhikevich – who is learning Japanese in his spare time – added that Son is in a rush to realize his ambitions, and prioritizes efficiency. "When he talks to me, he's not wasting time. I talk Japanese to Masa, but he switches to English immediately," he said. 

"His English is very good. He doesn't want to waste his time talking Japanese to me. I've tried multiple times, but after the first few seconds, he replies in English."

 

Not everyone actually wants to take SoftBank's money

Given the sheer capital at SoftBank's disposal, you'd be forgiven for thinking no tech CEO can resist its advances.

But one founder who preferred to stay anonymous told Business Insider that they turned down SoftBank's cash when it was on the table. The reason, this person said, was that SoftBank wanted to supercharge the business' growth before this founder was ready.

And at least one founder, Ola's Bhavish Aggarwal, is reported to have 'grown concerned about SoftBank's influence' on the ride-hailing firm

Bhavish Aggarwal, CEO of Indian ride-hailing giant Ola, is also reportedly trying to water down SoftBank's influence on his firm.

SoftBank and Tencent were the lead investors in Ola's $1.1 billion private equity fundraise in October 2017. Yet, according to a Bloomberg article published in April, Bhavish Aggarwal has since 'grown concerned about SoftBank's influence' on Ola and is 'fighting to maintain its independence' from the conglomerate.

The article quotes unnamed sources who claim that SoftBank encouraged Ola to merge with its rival Uber, and also struck a preliminary deal invest another $1.1.billion into Ola. Yet, said the sources, the deal collapsed when Aggarwal tried to include terms that guaranteed his own control of Ola.

An Ola spokesperson also quoted in the Bloomberg piece denied there was a rift with SoftBank.

 

 

 

Here are the key takeaways about how SoftBank strikes deals

• SoftBank favours startups that can help realise Masayoshi Son's 300-year vision, especially companies that use artificial intelligence. The stated aim of its Vision Fund 2 is to 'facilitate the continued acceleration of the AI revolution.' 
• The Vision Fund is run by a cadre of investment executives and former bankers but, ultimately, it's Son's baby.
• Taking SoftBank's money doesn't just mean counting the firm as an investor. Founders are integrated into the SoftBank "family", and will find it easier to do business with other SoftBank founders.
• Some founders don't always like the consequences of taking SoftBank's money — such as the control it gives the firm, or pressure to grow quickly.
• Son is pretty unconventional when assessing which firms to invest in, as demonstrated by Adam's Neumann's 12-minute pitch to Son. Intuition also reportedly factors into Son's decision-making, and he like to "feel the Force" before signing deals. Given WeWork's wobbly route to IPO, it remains to be seen how reliable this is as a way of making investment decisions.

Have we missed something? Email the authors at cwood@businessinsider.com and sghosh@businessinsider.com.

Contributer : Tech Insider https://ift.tt/2Me6xp8

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