In the summer of 2014, SoftBank founder Masayoshi Son attended a wedding on the coast of southern Italy that would change his company forever. But not in the way it seemed at the time.
The Japanese billionaire was among a select group of celebrities and business moguls gathered at a fortress-shaped resort in Puglia to celebrate the marriage of Nikesh Arora, a smooth, fast-talking Google executive.
Days after the wedding, the groom quit his lucrative job in charge of Google’s search-based ad sales business to join the global technology and telecoms group — ostensibly as heir-apparent to Mr Son.
But it was Mr Son’s re-encounter with another India-born guest at the wedding that has turned out to be more significant. Rajeev Misra, who once helped SoftBank pull off a complex deal when he ran debt trading at Deutsche Bank, was within months wooed to work for his former client.
Four years on, Mr Misra has outlasted Mr Arora and is widely seen as the most influential lieutenant to Mr Son, whose penchant for placing huge bets on unproven ideas has made him one of the world’s most important— and controversial — technology investors.
Insiders say it is the financial wizardry of Mr Misra, whose charm and tolerance for huge risk lifted him to the top ranks of Deutsche’s investment bank a decade ago, that has provided Mr Son with the tools to pursue his ambition.
Together they have created a $100bn fund, the largest private pool of money ever raised, which has put SoftBank at the centre of dealmaking in every corner of the world. The so-called SoftBank Vision Fund has allowed Mr Son to leapfrog a cliquey club of mainly Silicon Valley venture capital firms — something unthinkable just a few years ago. SoftBank is now competing against tech giants from the US and China for the most sought-after start-ups.
In the process, SoftBank is shifting the relationship between the tech sector and capital markets. At a time when start-ups are minded to stay private for as long as possible, SoftBank allows its portfolio companies to pursue growth without worrying about burning cash. Some venture capitalists even quip that “SoftBank has replaced the IPO”.
Stephen Schwarzman, the billionaire co-founder of private equity firm Blackstone, says Mr Son is redefining technology investing. “No one has ever done that before at this kind of scale,” he says. “It’s unprecedented but it’s meeting a market demand.”
In Silicon Valley, venture capitalists wonder whether SoftBank is fuelling its own bubble, pouring cash into a sector already awash in capital. Some warn of behaviour that recalls the dotcom boom and bust — after all, Mr Son briefly became the world’s richest man until the bubble burst in 2000 and SoftBank’s shares tumbled 99 per cent.
“Masa seems to be ultra-aggressive. If I had a lot of capital today, I don’t think I would run out and spend it given the market conditions,” says Howard Marks, the co-founder of distressed investing firm Oaktree Capital.
Some go further, saying Mr Son’s investments are based on a naive assumption that markets will always go up. “He’s so optimistic he thinks everything he buys will succeed,” says a former adviser.
SoftBank investments 1 Transport
SoftBank itself invested $7.7bn in Uber in 2017 and owns stakes in some of the world’s largest ride-hailing groups, including China’s Didi Chuxing, Brazil’s 99, India’s Ola and the south-east Asian group Grab. The Vision Fund has invested $159m into Nauto, which uses AI to improve driver safety and driverless technology.
The spending spree has been spectacular. Over the past two years, SoftBank has ploughed tens of billions into lossmaking companies, from ride-hailing groups Uber and Didi Chuxing to WeWork, the shared workplace group which is currently seeking to raise fresh funds at nearly double the $20bn valuation from a fundraising last August, when SoftBank invested $4.4bn.
This web of at least 31 minority stakes feeds into what Mr Son calls a “synergy group strategy”, where the copious amount of data that can be gathered will allow him to influence multiple industries without SoftBank itself having to manage the individual companies.
“The strategy is to create a consortium of companies that can sustain SoftBank’s growth over 300 years,” Mr Son says with typical bravado.
At the core of his vision is Arm Holdings, a UK chip design company. Mr Son believes Arm’s technology will become ubiquitous in a world where connected devices and artificial intelligence will shape a networked future.
Yet the Arm deal highlights what some see as the chief vulnerability of SoftBank — its high levels of debt and leverage. SoftBank paid $32bn for Arm two years ago, alarming its investors. Its debt now sits at $143bn.
It was Mr Misra who found a solution to the pressure on its balance sheet, devising a complex financial structure that allowed SoftBank to borrow against Mr Son’s most famous bet, a 2000 investment in China ecommerce group Alibaba now worth $145bn.
After the Arm deal in 2016, Mr Son decided he needed to dig even deeper. Mr Misra once again struck lucky. Thanks to past contacts, he managed to secure an audience for Mr Son with Saudi Arabia’s powerful crown prince Mohammed bin Salman, after its Gulf rivals Qatar had snubbed an approach.
SoftBank investments 2 AI, chips and robotics
SoftBank bought the British chip designer Arm Holdings in 2016 for £23.4bn in 2016. It has also taken an estimated $4bn stake in US graphics processor manufacturer Nvidia. The Vision Fund holds a $502m stake in UK start-up Improbable, which makes large-scale VR and augmented reality worlds for gaming and training. SoftBank also owns a $114m stake in Braincorp, which develops robotics technology, and bought Boston Dynamics and Schaft from Google last year.
It was a marriage of minds. The crown prince committed $45bn to the $100bn Vision Fund within weeks. A signing ceremony in Riyadh last year was held to coincide with Donald Trump’s first overseas trip as US president.
Mr Son has richly rewarded Mr Misra for his dealmaking prowess. He named Mr Misra as the chief executive of the Vision Fund, a member of SoftBank’s 10-person board and one of three executives shortlisted to one day replace the 60-year-old founder.
Mr Arora departed days before SoftBank moved on Arm, as it became clear he would not become the boss anytime soon. The circumstances surrounding his exit still haunt the company. SoftBank directors have hired a law firm to investigate whether an insider aided an anonymous shareholder campaign that targeted the conduct of Mr Arora and another executive.
Mr Misra has adopted an unorthodox approach to the Vision Fund. Rather than turn to Silicon Valley or traditional venture capital sources, he has brought in former colleagues from Deutsche Bank and other corners of high finance.
The men — and they are overwhelmingly men — were part of an elite group of bankers who transformed a conservative German lender into one of the most sophisticated Wall Street firms, but one that did not develop the internal controls that such enormous risk-taking required. The bank still faces a painful reckoning for those years of excess, which included a period where Mr Misra’s childhood friend, Anshu Jain (who was also at the Puglia wedding), was co-chief executive.
“What is remarkable is that the biggest fund in the world for technology is not run by tech-savvy guys,” says one person closely linked to the fund.
The Vision Fund operates out of a four-storey, Edwardian building in London’s Mayfair, home to Europe’s gilded hedge fund and private equity community. An ebullient character, Mr Misra once greeted the FT there barefoot, dressed in a light blue linen suit and crisp white shirt, with his hair slicked back and wrists adorned with beads and bracelets. At regular intervals, aides walked in bearing coffee while others came seeking advice. Throughout the conversation, Mr Misra chewed paan while vaping from an electronic cigarette.
Past associates from his banking days recall a brilliant trader who moved to his own rhythm where rules were meant to be bent. Mr Misra had colleagues remove alarms so he could smoke on the trading floor. He had an uncanny habit of poaching his colleagues’ food from off their desks or even as they were eating.
As head of fixed income, Mr Misra oversaw Deutsche’s biggest traders and trades including a contrarian bet against subprime mortgages that came good as the financial crisis hit. After leaving in 2008, he had short stints at UBS and Fortress, the hedge fund that SoftBank then bought last year on his advice.
SoftBank investments 3 Tech and apps
Paytm, the Indian digital payments and ecommerce company, raised $1.4bn from SoftBank in 2017 — its largest investment in India. Earlier this year, the Vision Fund invested $300m in Wag!, a dog-walking app, and has also invested in Ping An Good Doctor, a Chinese online health portal.
The Vision Fund reflects and projects Mr Misra’s whirlwind style, resembling something more akin to a fast-paced trading floor rather than a polished investment firm.
His hires include former Deutsche Bank colleagues such as Colin Fan, its former trading chief, Akshay Naheta, Munish Varma, Saleh Romeih and Faisal Rahman. His chief of staff, Neil Hadley, was brought in from UBS.
The Vision Fund’s structure, which differs from almost every other venture capital or private equity fund, is down to Mr Misra. Instead of taking pure equity stakes, all outside backers receive 62 per cent in preferred units that pay a 7 per cent coupon. Only SoftBank has a full equity stake, meaning it has the most to gain from the fund’s success.
Tasked with the challenge of dispersing an unprecedented sum, staffers describe a culture with limited day-to-day oversight where they are urged to hunt down investment opportunities.
Employees were initially encouraged to deploy capital quickly so that the fund would begin to earn management fees, according to people familiar with the fund’s internal controls.
“It is like the Wild West in there,” says one person who has worked with the dealmaking teams in both SoftBank and the Vision Fund. “The set-up seems to be made for maximum speed. There is just such an urgency to get deals done. There is really fierce competition between the different teams, everything is moving incredibly fast . . . but there aren’t the sort of systems in place that you might expect to formalise it all.”
In the early days of the Vision Fund’s inception, SoftBank placed more than $1bn in three start-ups — Improbable, OneWeb and Brain Corp — which at the time of investment had no significant revenues.
In aggregate, SoftBank has deployed more than $32bn in minority stakes at companies ranging from a satellite internet provider to a dog walking app called Wag!
In his boldest move to date, Mr Misra last year orchestrated a complicated $9.3bn deal for SoftBank to become the largest shareholder in Uber. The negotiations took place at the height of an internal struggle between the transportation company’s backers, its board and its founder. The talks also raised tensions with the Vision Fund’s principal backers, Saudi Arabia, which avoided an embarrassing writedown on a previous Uber investment because of the deal structure devised by Mr Misra.
“The whole Uber deal was Rajeev. He’s the one that got it done,” says one adviser who credited Mr Misra for his handling of the Uber situation.
The deal solidified SoftBank’s gigantic bet on the ride-hailing industry, with stakes in Uber, India’s Ola, Singapore-based Grab and China’s Didi Chuxing, all of which are expected to be swapped into the Vision Fund and would count as part of Softbank’s $28bn contribution alongside a 25 per cent stake in Arm.
Key investments
Shares in SoftBank, which is valued at $80.8bn, trade at a steep discount to the value of its investments:
Sprint
Total valuation: $22.1bn
Value of Softbank’s 83% stake:
$18.2bn
Yahoo Japan
Total valuation: $20.5bn
Value of Softbank’s 43% stake:
$8.8bn
Alibaba
Total valuation: $521bn
Value of Softbank’s 28% stake:
$145bn
Start-ups that have had discussions about an investment from SoftBank told the FT that the Vision Fund sometimes outsources its due diligence process to consultancy firms, unlike traditional venture capitalists.
Whereas VCs tend to drill deep into the business, build revenue models and set key performance indicators before investing, Mr Son, who has the final say on all decisions, takes a different approach. Fond of quoting Yoda, the Star Wars Jedi master, Mr Son says he is guided by gut feeling as he tries to “feel the force” in assessing a deal.
Once in the network, executives say they experience two sides to SoftBank. The first is the ability of Mr Misra and his team to secure the most lucrative terms available on financing. The other is an army of Son loyalists who descend from within SoftBank’s operating companies and have more formulated views on how to expand business.
“There’s a real schizophrenia between the two sides,” says one SoftBank-backed executive.
“Over the past year we’ve brought together many people from different backgrounds and grown into a pretty large group,” says Ron Fisher, the vice-chairman of SoftBank and one of just two senior members of Mr Son’s inner circle for the past 25 years. “It takes time to have consistency across the organisation but it is something we spend a lot of effort on. We will get there.”
The enormous scale and dizzying pace of the Vision Fund have rekindled concerns among SoftBank shareholders over governance. Mr Son has been unnerved by the level of leaks coming out of the company and has hired a law firm to review staff communication.
Analysts at Goldman Sachs have warned that the Vision Fund could turn into a “large black box”. Mr Son remains unfazed, pointing to his recent successes such as selling a $2.5bn stake in India’s Flipkart to US retailer Walmart for $4bn after just eight months.
The investment returns from the fund have “actually been too good”, Mr Son boasts, so much so that he is already setting his sights on a “Vision Fund II”. But that belies the reality that SoftBank has struggled to raise the final $7bn for the initial fund to get to $100bn.
One idea under discussion is a $5bn investment backed by debt facilities where employees and executives will be rewarded handsomely if they succeed on their deals.
“If the first fund was created on faith, the second one will be born on results,” says a person close to SoftBank. “Faith is not an easy process.”
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