SoftBank Playing Hardball: Betting Big on The Singularity

The Massive Fund🤯

What would you do if you were given $100 billion? For me, I’m not quite sure. For Masayoshi son, the CEO of SoftBank and the visionary behind the biggest corporate venture capital fund ever, he’s betting big on the singularity – I’ll touch more on this later.

With a fund larger than the GDP of a small country (greater than 15 countries to be exact), the SoftBank Vision Fund towers over all major private equity funds and venture capital funds that have come before it. To bolster the fund’s influence even more, the fund was valued at $98 billion in November 2017 and is backed by tech behemoths like Apple and Qualcomm. This $98 billion price tag is one that even the infographic below doesn’t take into account.

Mind-Blowing Fact: Per CB Insights, the SoftBank Vision Fund’s $98 billion is almost the same amount that all VC-backed companies received in 2016 ($100.8 billion across 8,372 deals)

SoftBank Vision Fund

Infographic from September 2017 (Recode)

The Man Behind the Vision 👓

masayoshi-son2

Before diving into the singularity-thesis that serves as the foundation for the Vision Fund, we need to understand the man behind the vision. Masayoshi Son is the CEO of SoftBank, a telecommunications company that now touches every single industry from the internet and semiconductors to finance and robotics.

Masayoshi is no stranger to the high stakes world of the technology markets. It’s reported that at the height of the dot-com bubble in the late 90’s that SoftBank was worth $180 billion, which effectively valued Masayoshi’s net worth at $78 billion. According to him, Masayoshi’s wealth grew at a rate of $10 billion a week at its peak. For three days, he was the wealthiest person on earth. When the dot-com bubble burst, SoftBank’s stocks plummeted and Masayoshi’s net worth fell by more than $70 billion. This is reported to be the single largest financial loss by any one person ever. Unlike Pets.com, the dot-com bubble did not mark the end of SoftBank, Masayoshi, and his big bets.

Stock

SoftBank Stock (in JP¥) from Google Finance

Despite having had many big bets fail, in 2000, he invested $20 million in an early-stage company headed by an unproven entrepreneur in China. That stake in Alibaba is worth approximately $130 billion (a 6500x return) today. Since then, SoftBank and Masayoshi have recovered and emerged as a force to be reckoned with in the greater technology community, leveraging its checkbook as a means to best position itself for the upcoming singularity.

The Singularity in Practice 🤖

So why did SoftBank raise a $100 billion fund? Because Masayoshi Son believes in the singularity, a theory that hypothesizes that due to the rapidly accelerating rate of technological innovation, machine/robot intelligence will inevitably surpass that of humans. In other words, the thesis posits that intelligent machines, with artificial general intelligence (which we don’t have yet), will enter a rapidly accelerating self-improvement loop where each new iteration of itself is more intelligent. Eventually, as Masayoshi believes, machine intelligence will eventually surpass the limits of human intelligence.

This forecasted event not only has massive implications on how we will work, but how we will fundamentally live. As a result, no industry will be left untouched by this revolution. Put quite eloquently, Masayoshi says

“Every industry that mankind ever defined and created, even agriculture, will be redefined. Because the tools that we created were inferior to mankind’s brain in the past. Now the tools become smarter than mankind ourselves.”  

The scale of the singularity’s impact is reflected in the fact that Vision Fund investments have been industry-agnostic. With investments ranging from biotech to transportation, the fundamental commonality among all of them is that they collect data that will serve as the foundation for the tools and machines of the future. Whether its location data, health data, or agricultural data, these insights are and will continue to be instrumental in creating and improving the transformative technologies that change how we live and work.

Screen Shot 2018-01-23 at 5.15.11 PM

Markets Flooded with Cash 💰

With a checkbook rivaled by none, SoftBank has been investing massive amounts of capital into startups at a rate that is unparalleled. Intuitively, this can be good or bad depending on the situation. For financial markets, technology IPOs have been pushed further down the line due to the influx of capital into private markets. This phenomenon is accelerated further by SoftBank who has the appetite and resources to give later-stage companies like Uber and WeWork the capital they need. Though SoftBank prolongs the eventual exit for companies, whether its an IPO or M&A, they do have the ability to give liquidity to early-stage investors and early employees like they did with Uber.

Softbank’s massive check sizes comes with increased control over the strategic direction of its portfolio companies. Through its most recent investment in Uber, SoftBank has effectively become the most dominant player in the ride-hailing space since it has also invested in Ola (India), Grab (Singapore), Didi Chuxing (China), and 99 (Brazil, but now a part of Didi). Quiet obviously, it seems as if there’s a competitive conflict of interest among its portfolio companies. It’ll be interesting to see how the strategies and specific target markets for these organizations change as a result of the guiding hand of SoftBank.

An interesting perspective in the VC community is that due to SoftBank’s size and appetite, they are pushing up the value of already overvalued companies into unsustainable territories. Another belief is that investors may be forced to have bigger funds or be pushed out of investing altogether. Only time will tell what happens. Whether exits are pushed further down the pipeline, the singularity happens, or Masayoshi’s big bets pay off, it’s clear SoftBank will be a massive player in the technology world for the future. Ultimately, VCs, SoftBank portfolio companies, and portfolio company competitors will feel the effects of the SoftBank titan that’ll be able to move markets with a single investment decision. 

10 thoughts on “SoftBank Playing Hardball: Betting Big on The Singularity

  1. Hey Erik!

    The amount of money at SoftBank’s disposal never ceases to blow my mind. I also definitely don’t blame Masayoshi for his fears with AI, as concepts like Moore’s Law and decentralization continue to expand technology’s pervasiveness. One thing that stood out to me in your post, however, is the $1 billion that SoftBank has invested in Fanatics: the company seems to be somewhat of an outlier in its portfolio. What do you think that could be for?

    Liked by 1 person

    • I wouldn’t say that the Fanatics investment is quite an outlier. SoftBank was an early investor in Alibaba and are big believers in e-commerce and the shift from traditional physical retail to digital retail. What I think made the deal particularly attractive was Fanatics’ distinct advantage over Amazon: its licensing deals with major sports leagues and collegiate programs.

      Like

  2. This was interesting to read because I’ve always been interested in the singularity simply because its a concept that is almost unfathomable. That makes sense that Vision Fund investments would encompass such a broad base of market spaces, considering the prospective singularity and how it would impact every industry. I wonder what these overvalued companies (and startup space in general) that SoftBank is invested in would look like without the aid of these investments. Thanks for sharing!

    Liked by 1 person

  3. Hi Erik!
    I enjoyed reading this post because I was unfamiliar with singularity before this. Masayoshi makes a good point that with the singularity, no industry will be unaffected. However, the concept that “machine intelligence will eventually surpass the limits of human intelligence” is a little scary to me. I guess it’s like the discussion we had in class about autonomous cars–autonomous cars get in less accidents than human drivers, so should there be a steering wheel in autonomous cars? In the future, will there still be room to control how machine intelligence is applied? Either way, I liked reading about how someone who believes in the singularity invests and runs their fund!

    Liked by 1 person

  4. Great post, Erik!
    While vaguely familiar with SoftBank (I am researching Fanatics, so the recent investment has been a key aspect), I definitely learned quite a bit. The idea of singularity is a bit frightening to me because as the loop speeds up, it seems as if there is no way to stop it. I often find myself wondering about which traditional jobs machines will take the place of in our lifetime, so following SoftBank’s investments may give great insight into expert predictions of this. PS – great use of photos and graphics!

    Liked by 1 person

  5. Erik,
    Thanks for sharing! The infographic you included says it all. It’s unbelievable to see SoftBank in comparison to other VC funds—they certainly are in a league of their own. Masayoshi Son’s perspective on singularity is fascinating and honestly, with the rate that technology is improving, it may not be too far off. However, similar to our discussion in class, AI and machine/robot intelligence ultimately surpassing human intelligence is up for debate. For example, emotional intelligence can be hard to replicate. It will be interesting to see which startups the fund invests in over the next few years.
    Good stuff!
    Kelsey

    Liked by 1 person

  6. Awesome post! Ive heard a lot about SoftBank in the news lately, as they are doubling down on their investment in Uber. It is crazy how you highlighted the risks that Masayoshi has taken from the dot com bubble to today that has brought him to the top. I think that he is right, the technological advances are inevitable. There are many people who will try and get in the way of AI and machine intelligence, but they are simply on the wrong side of history. Will be interesting to see what SoftBank’s next find is, and how they are going to steer Uber. in the future.

    Liked by 1 person

  7. Erik, very informative post! You really captured SoftBank’s influence in tech and on the future of tech. It certainly seems like SoftBank is in a league of its own when it comes to private equity and venture capital. Your discussion of the future of tech reminded me of one of Softbank’s recent innovations—the Pepper bot. I discuss some of the characteristics of Pepper in my recent post, “The Rise of the ‘No-Collar’ Class.” Masayoshi places a lot of trust in machine intelligence, but is he too trusting? I definitely plan on following SoftBank’s future endeavors. Thanks for demystifying this corporate giant!

    Liked by 1 person

  8. When Softbank considered investing in Uber, they were able to contractually limit Travis Kalanick’s oversight of the company (board seats and voting rights of early-investor preferred shares) by leveraging their fund and threatening to send billions of dollars to Lyft instead. Because of their wealth of resources, Softbank is a 10-headed monster that can single-handedly alter markets with their funding. I’m interested to see how they intend to promote synergies between companies as they try to spearhead a move towards general AI intelligence.

    Liked by 1 person

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