In the mid-1980’s the demand for personal computers surged. There was an immense dearth of software suppliers in the then computer industry. The SoftBank promoter and an ingenious Masayoshi Son saw an opportunity to cater to the growing demand and innovative potential in the software business. He came up with a software solution and distribution company-SoftBank in September 1981 which has now grown into an international conglomerate with an innate focus on technological ventures.
Motivated by the success of the software business, Son was determined to grow and expand his technology business while being centered around the Internet Of Things by joining hands with large players and engaging in acquisitions.
In 1996 SoftBank made a joint venture with US tech giant Yahoo and they created Yahoo Japan-which is the most used search engine in Japan till date.
In 2000, SoftBank invested USD 20 million in the ambitious Chinese venture Alibaba Group led by Jack Ma. Alibaba is the largest company in China with a market capitalization of USD 440 billion. SoftBank today owned 26% of Alibaba, with its monetary investments grown to a whooping USD 125 billion in 2020 implying an effective annual yield of 138%. What is surprising is that Alibaba did not itself approach SoftBank rather its vision was Son’s allure for investing in the Chinese e-commerce. Son booked a per-tax profit of $11 billion USD when he sold his stake in Alibaba in 2019.
He continued to tread on his path of making investments in tech companies and start-ups until the dot-com bubble of 2000.
The Dot-com bubble was a result of massive spurt in the adoption of Internet Services in the late 1990’s that peaked around 2000. Driven by the technical revolution investors globally took a long position in the tech ventures only to lose their wealth when the bubble burst.
SoftBank's investments which were managed conventionally by setting up of funds went against the popular saying-”Don’t put all your eggs in one basket”. SoftBank was invested in several e-commerce and e-finance companies like e-Bay, Gio cities and Yahoo. The estimated exposure to internet stocks totalled to USD 5.2 billion before the bubble burst. Besides that there was a bearish sentiment in SoftBank as the company had the repute of being a tech giant as it held an estimated 25% of the internet business globally in the late 1900’s. In 2000 the market capitalization of soft-bank was USD 200 Billion owing to the momentum effect. When the bubble burst the company was only left with ”Un-percentage” of its total market capitalisation. Masayoshi Son lost nearly USD 70 billion of personal wealth.
Being a man of great perseverance he again built his empire by having an eye of detail for business potential. He diversified from the SoftBanks to telecommunication business.
To have a more consolidated market in the telecommunication business SoftBank spent nearly USD 15 billion to buy Vodafone Japan in 2006. Son took the gamble of approaching Steve Jobs to make China the preliminary market for the famous iPhone. He used his telecommunication and internet business to leverage and provide consumers with a more enriched experience. What next happened was restoration of entrepreneurial confidence in SoftBank as it increased its subscriber base from 16 to 25 million. This ecosystem of understanding between Son and Jobs also enabled Iphone to emerge as the smartphone with a dominant market share in Japan reflecting the till date product loyalty.
In May 2017, SoftBank introduced the vision fund to the world. The USD 100 billion fund was the world's largest private equity fund. SoftBank contributed USD 28 billion and USD 45 billion were contributed by the Public Investment Fund of Saudi Arabia, the Saudi Arabia’s primary treasury fund. The marginal contributors included tech ventures like Apple, Qualcomm, Sharp, Arm Holdings, Larry Ellison and Mubadala-Saudi Arabia.
The core investments were in the sectors of Artificial Intelligence, Mobile Computing, Robotics, Communications, Infrastructure, Financial Services, and Consumer Technology. 40% of this pool of funds was structured debt implying investments, implying use of leverage and a need to accelerate the process of generating returns.
The primary objective was to invest in an idea that was tech-driven,unique,had the potential to capture the market and most importantly the entity had the economic and sustenance ability to go public within a short span so that Vision Fund could capitalize on the use of leverage and meet its debt obligations.
Vision Fund invested in nearly 70 entities globally, while some investments bore fruit others became a drain of financial resources.
The most horrendous was the investment in WeWork-The American Retail Co. offering Co-Office space. In January 2017 VIsion Fund invested USD 18.5 billion in WeWork which adopted an aggressive expansion policy, the entity also faced a repute damage when the Ceo Adam Neumann was accused of leasing properties off the books to his own monetary benefit. The situation was aggravated when investors began questioning WeWork’s business model as it required huge capital outlays with not so promising and encouraging revenue streams. This all happened in the blink of the moment when WeWork was about to go public in 2019. The IPO crashed and market value which was around USD 47 billion came crashing down to USD 7 billion. And SoftBank lost USD 4.5 billion due to this catastrophe.
Investments in companies like Uber, Ola, Slack which have highly volatile cash flows have become more detrimental for Vision Fund Portfolio amidst the pandemic.
Vision Fund is still taking a leap of faith in the Indian Hospitality Start-up OYO and American Cab service Uber.
Other entities giving positive returns include Airtel Africa, Paytm, Ola etc.
The Covid-19 pandemic initiated the company to display the effect via the much talked about the-Unicorn Presentation portraying that some companies will emerge stronger while some are likely to scumbb themselves to the disruptions caused by the pandemic.
According to CEO Rajiv Mishra, USD 10 billion has been invested in India so far but yet another USD 13 billion designated to be allocated to India have not been invested so far. He further exclaimed that there are 15-20 deals with the Indian entities that are yet being analyzed.
