Fabernovel study on SoftBank

It is licensed under the Creative Commons BY-NC-SA license to allow for further
contributions by experts and users in the coming months.
You are free to share and remix / adapt the work.
You must cite this document: SoftBank Vision Fund, December 2019, by Fabernovel.
You may distribute a modiﬁed work under the same or similar license.
You may not use this work for commercial purposes.
Why do we release this kind of work for free?
Our job is to help large organizations think and act like startups. We believe this can only be achieved by encouraging
people to innovate and explore new business models. We aim to inspire you by giving you the keys to understanding new
markets.
This work was made for you to share, reuse, remix, rework…
-

Jean-Christophe Liaubet
Partner
at Fabernovel
ereitsu of modern times, Softbank has pioneered with its Vision Fund an Innovation at scale
strategy powered by an agressive venture investments. It has thus opened an alternative way to
GAFAM’s model that relied primarily on an organic technology model amplified by some bolt-on
M&A.
SoftBank’s transformation case is in our view particularly interesting at a time when the European startups
and innovation ecosystems need to catch-up with their American and Asian and many Corporates are
entering in « coopetition » with Investment funds, launching or reinventing their ventures set-up in order to
address their innovation at scale challenge.
For sure, like all disruptors Softbank has been somewhat extreme in its approach (especially in terms of
risk aversion, fundraising, inflationary valuation) and not always exemplary in its practices (CSR,
governance, financial disclosure...). Nevertheless we are witnessing some interesting read-across for
European players, especially as vision, risk taking and entrepreneurial approaches are in our view critical
success factors in the new economy.
Thus one of our wishes for 2020 is that some European Softbank may emerge and create a new way for
innovation at scale.
K
Foreword
-

4Who’s who ?
Partech
$440M
Blackstone V
$21,6Bn
All VC france
$1,76Bn
A16z (all assets)
$10Bn

5
SoftBank Vision Fund I
$100Bn
SoftBank took
Venture Capital
to another level

Both press & investors are loving the SoftBank hype. 6

Like it or not, SoftBank is worth the deep dive.
A bold vision for the world.
How SoftBank became the largest fund ever.
The Softbank recipe.
What is SoftBank’secret sauce(s)?
SoftBank broke the VC playbook.
Here’s how.
What’s next for SoftBank?
Should we expect a SoftBank effect?
A shift in the Tech Market?
7

A bold vision for the world.
How Softbank became the largest fund ever.
1

Masayoshi Son
Aboldvisionfortheworld. It all started with a fervent advocate for the information revolution.
I believe the continually advancing Information Revolution will lend
us the wisdom and strength to address humanity's previously
unsolvable problems and help us make a positive impact on all of
society.
Masayoshi Son.
Looking for opportunities
to accelerate the world’s
transition towards Singularity.
Name Masayoshi Son
Nationality Japanese of Korean descent
Birth date 1957
Studies UC Berkeley - Computer science
Professional experience
1972 Starts translation company - sold patent $1M to Sharp.
1981 Starts SoftBank Corporation.
2000 Becomes the richest man on Earth for one day…
then loses $70Bn during the dotcom bubble crash.
2006s Threatens to set himself on ﬁre if he doesn’t get telco licence.
2016 Switches his focus from running SoftBank operations to Vision
Fund.
9

Aboldvisionfortheworld. Successfully cruising through 4 Information revolutions.
From software distribution to artiﬁcial intelligence.
AI&IoTInternet MobilePC & Software
1981
Creation of SoftBank,
a software distribution
company
2000
Strategic $20M
investment in Alibaba
2013
Acquisition of U.S
carrier Sprint
Telecom
1993
Establishment of
SoftBank holding in
the U.S. to invest in
Internet companies
2016
Acquisition of ARM
2017
Launch of the
Vision Fund I (VF)
2001
Launch of Yahoo!BB
broadband service
with ADSL lines
2006
Acquisition of Vodafone
K.K & strategic distribution
of iPhone
Sources: SoftBank annual report 2018
10

Aboldvisionfortheworld. From an active telco investor...
Although SoftBank is primarily
a telecom company, it has always
been an active technology investor,
and the company’s growth and
transformations have always heavily
relied on mergers and acquisitions.
Cumulative Round Size Participation Number of Deals
Cumulative VC & PE Round Size Participation by Softbank.
Based on Known Round Sizes from Crunchbase Data, Actual ﬁgures are higher.
Source: Softbank Annual report
Outsourcing innovation through M&A.
11

Aboldvisionfortheworld. ...to a modern form of Kereitsu?
Keiretsu.
系列 - Japanese term.
A set of companies
with interlocking business
relations and
shareholdings.
In 2018, SoftBank
ofﬁcially transited to a
Strategic Holding
company, taking
SoftBank (Telco) public.
Like large japanese
Keiretsu (Mitsubishi,
Nissan…) it orchestrates a
conglomerate of partner
companies, in an effort
to push synergies
between them.
66%
(65$Bn)
80%
(23$Bn)
100%
(31$Bn)
48,3%
(10,3$Bn)
26%
(476$Bn)
+
12

Aboldvisionfortheworld.
SoftBank,
a giant by numbers.
83$Bn
Market capitalization
as of 16/12/19.
13,9$Bn
Proﬁt in 2018.
74 952
Employees
across the world.
70+
Portfolio companies
of the Vision Fund.
98,6$Bn
Size of SoftBank
Vision Fund 1, the
largest in the world.

Aboldvisionfortheworld. A new mission for the achievement of its 300-year vision.
SoftBank is a mission-driven company. Its mission roots in its founders
fascination for technology, and its ability to transform humanity for the better.
Industrial revolution
Edison, Ford and Rockefeller were
the conductors of economic growth by
supporting innovation and technology.
Information revolution
SoftBank wants to become the conductor
of the Information revolution by investing in
the world’s best technology companies.
We want to be the conductor of the AI Revolution, a maestro
of the orchestra comprising the best AI entrepreneurs.
Masayoshi Son
14

Source: National Retail Association (NRA)
The Vision Fund is SoftBank’s chosen spaceship for the mission.Aboldvisionfortheworld.
Circles sized by the amount each fund has raised.
Softbank
Vision Fund
$98Bn
Blackstone
V Fund
$21.7B
Goldman
Sachs VI
Fund
$20.3B
Apollo
Fund VII
$18.4B
TGP
VI Fund
$19.8B
KKR 2006
Fund
$17.6B
Biggest
Funds
III
III
IV
V
Major
Tech
Funds
Andreessen
Horowitz
$5.6B
Benchmark VII
$42.5M
Greylock
Fund XV
$1B
KPCB Digital
Growth Fund III
$1B
Playground
$300M
Sequoia
Global Growth
Fund II
$2B
Union Square
2016 Fund
$175M
15

Aboldvisionfortheworld. A giant in size, small by the number of LPs.
Equity
Debt
28
17
33
9.3
5.7
Abu Dhabi’s
Mubadala
$15 Bn
Apple, Qualcomm,
Foxconn and Sharp
$5 Bn
SoftBank
Group
Saudi Arabia Public
Investment Fund
$45 BnSoftBank
Vision Fund
To raise the biggest venture capital
fund ever, SoftBank relied on a limited
number of partners, as more than 90%
of the funds come from either Saudi
Arabia Public Investment Fund,
Mubadala or SoftBank itself.
45 minutes, 45 billion dollars.
1 billion dollar per minute.
Masayoshi Son.
16

Thanks to a unique ability to raise funds.
Reduced risk
structure
Combined with a complex
structure designed to reduce
risk for investors and raise
more money.
/ Preferred stock (7% coupon)
brings reduced risk for equity
investors
/ High SoftBank stake serves as
reassurance for other LP.
Track record
Masayoshi Sans beneﬁts
from his reputation and past
performance of the company’s
investment.
Alibaba stake and Son’s vision
enabled him to raise $45Bn in
45 minutes from Saudi Arabia.
Being an LP in SVF is a bet on
the booming technology sector.
Debt leverage
High leverage (40% of debt)
enabled Softbank to double
fund size. SoftBank relied on:
/ Its stable cashﬂow
as a telco operator.
/ Alibaba stake serving as a
liquidity guarantee.
/ 20M in employee loans.
+ +
Aboldvisionfortheworld. 17

I’m the
king of debt.
Masayoshi Son

The SoftBank recipe
What is SoftBank’s secret sauce(s)?
2

TheSoftBankrecipe.
A cluster of N°1 strategies.
We only live once,
so I want to think big.
I have no intention
of making small bets.

TheSoftBankrecipe. SoftBank’s investments reveal its long term view of the future.
Masa’s bets have always been made with one main rule in mind: invest in long term trends
that will deﬁne the future of the world. According to SoftBank, in 2030, the world will be more:
Connected
Automated
On-demand Freelance &
collaborative
21

TheSoftBankrecipe. Identifying category leaders.
An ability to outperform the
market
The Vision Fund especially targets
unicorns
or soon-to-be unicorns, that already have
raised hundreds of millions of dollars.
+50% market share potential
The Vision Fund looks for companies
with a market share potential of 50-80%,
especially focusing on markets which
have network effects or winner takes
all dynamics.
A deep fast growing market
SoftBank primarily targets fast
growing markets with a strong focus
on technology sector or as technology
as an enabler for efﬁciency.
SoftBank Vision Fund’s investment strategy is to fund only potential category leaders.
As a result, 66% of their investments were made on unicorns (post-money valuation).
Source: Fabernovel portfolio analysis
22

TheSoftBankrecipe. One rule = long term growth over profits.
Because it believes in the ability of its portfolio companies to become long-term champions, the
Vision Fund invests in companies with strong growth profiles regardless of their current
profitability.
Short term
Scale
Network
effects
Growth
Market
power
Profits/
Investment
Long term
I’ve got an owner that says, invest, you know, invest like crazy to
make sure you capture these waves of growth in the future.
Simon Segars, ARM CEO.
23

South Am
6%
Aboldvisionfortheworld. A vision that knows no frontiers.
The same way the information revolution has no border, SoftBank’s investments are spread
globally.
Source: CBInsights, From 2014 to march 2019
India
11%
Europe
9%
USA
56%
South
East Asia
6%
China
12%
x% share of investments per region
24

TheSoftBankrecipe.
From picking winners
to making them.
If money was not a
constraint, what would
you do differently in the
next ﬁve to 10 years?

TheSoftBankrecipe. Removing the constraint of capital.
20+
Deals above
the 1Bn mark
since inception.
$100M+
Minimum ticket
for SoftBank Vision
Fund investment.
$910M
Average investment
per portfolio company
(all rounds combined).
We’re looking for companies that are growing very quickly and
can deploy a lot of capital in a differentiated way. Before we
invest, we completely reshape the business plan to invest
more capital than they initially asked for.
Jeff Housenbold, MD
26

Capital as a competitive advantage.
TheSoftBankrecipe. From picking winners to making winners. 27
SoftBank’s bets are an
all-out play on scale.
1 Because most growth
technology markets
are characterized by
network effects & winner-
takes-all, access to capital
in itself becomes a
competitive advantage.
2 Companies are left with a
tough choice: to accept
SoftBank’s money or let its
competitor get
it (Masa Son publicly
states that he will do so),
and likely lose the battle.
In the network economy, capital is the mother of all growth.
Large SoftBank check
Larger return for SoftBank
“Winner takes
all” dynamics
Annihilating
competition
growth
Ability to attract
best companies
in SVF
Both critics and admirers
agree on this point:
SoftBank’s strategy relies
on access to capital as
a competitive advantage.
Because it has deeper
pockets than competition
SoftBank seeks not
only to invest in winners
but to make winners.

TheSoftBankrecipe. SoftBank claims to target winner-takes-all markets.
Winner-takes-all markets are reinforced by traditional economies of scales,
brand effects and other moats that favor leaders in one specific industry.
Network effects
Same side network effects (more customers
bring more customers) or cross-side
network effects (more suppliers bring more
customers) tend to bring marginal
acquisition costs close to zero.
SoftBank believes and targets technology markets characterized by a power law distribution of
value, and thus targets winner-takes-all markets & business models, with following
characteristics:
Customer lock-in
Customers find an interest in staying with
the same providers because they bring
convenience, better experience or better
price, as well as important switching costs.
Without lock-in, network effects are
worthless.
Unlimited reach
Digital technologies enable an infinite
reach and distribution across markets,
with little geographical barriers to entry.
+
28

Indeed, it goes all-in on winner-takes-all companies.
SoftBank believes in and targets technology markets characterized by a power law distribution of
value, and thus targets winner takes all markets & business models, with following
characteristics:
Source: FABERNOVEL portfolio analysis
TheSoftBankrecipe.
60%
Winner takes most market
with network effects
represent 40% of SVF’s
portfolio, but 60% of
value invested.
+232%
On average, SVF
invested 232% more in
winner-takes-all
companies than in
other companies.
$1,41Bn
On average SVF invested
1,41Bn in each company
that ﬁts the
winner-takes-all
deﬁnition, across
33 companies, compared
to 610M for others.
29

Chasing the right champions
TheSoftBankrecipe. Push > Pull
SoftBank obviously has a lot of inbound calls. Yet most of its investments are
push investments from SVF after industry and company screening.
1 Like any investor, SVF wants to
have the luxury to hunt the best
founders to maximize value, and
not only choose among its dealﬂow.
30
2 SVF is preceded by its reputation,
it knows it will have the attention
of founders considering the amounts
it can invest.
3 There are much fewers companies
that have the size and potential ﬁtting
SVF criteria, thus making it easier to
hunt.
This is explained by several reasons:

TheSoftBankrecipe.
A synergetic ecosystem.
We don’t randomly
invest in companies.
We are focusing on
Internet companies
with a view to
generating synergies
with the investment
portfolios.

TheSoftBankrecipe. Helping portfolio companies with strategic advantages
using services as a deal sweetener.
Like all serious venture capitalist fund, Softbank’s
investments comes with benefits. SFV is building
a 70-people-strong operating structure dedicated
to helping portfolio companies, thus increasing
their value for SoftBank.
1 Synergies with the SoftBank ecosystem,
including SoftBank, Sprint networks.
2 International expansion (especially
Japan).
3 IPO-readiness to help portfolio companies
prepare for IPO.
4 Consulting services & strategic advisory.
5 Financial help on structuring deals and
debt financing, leveraging SoftBank’s
financial expertise.
32

TheSoftBankrecipe. The SoftBank maﬁa.
Commercial .
relations
Partnerships
Capital links
33

TheSoftBankrecipe. Synergies within the SoftBank ecosystem.
x x
The SoftBank network
SoftBank has one of the
largest sales network in Japan
(3,500 retail stores).
SoftBank has strong
relationships with Japanese
banks, Alibaba, large corporates
like Foxconn.
SVF portfolio companies are
also encouraged to connect.
Customer relations
SoftBank pushes its companies
to work and contract with each
other.
Potential customer synergies
are taken into account in the
due diligence processes.
Partnerships
SoftBank pushes its companies
to create partnerships together,
share technology and insights.
Potential partnership synergies
are taken into account in the
due diligence processes.
x
34

The SoftBank Keiretsu as a differentiator
One of SoftBank’s main strengths resides in its
portfolio of companies that are smartly linked
into a homeostatic ecosystem, while remaining
independent in their strategies. SoftBank’s
strong M&A expertise has not been transformed
into SVF, but rather inspired SVF, as SoftBank
continues to invest off its balance sheet.
TheSoftBankrecipe.
Resilience
Greater resilience for the whole ecosystem
thanks to shared resources and ﬂexibility.
Differentiator
The SoftBank keiretsu is differentiator to
attract the best companies for SoftBank as an
Investor.
Synergies
Synergies that create value for both SoftBank
ecosystem and the NewCo.
2
3
1
35

Merging Line and Yahoo Japan to build their own superapp.
Value
Capture
Value
Creation
Line’s 200M users
Yahoo Japan’s 50M users
Proprietary services
3rd
party services
Userbase synergies
geographical & demographic
synergies will give combined
entity the scale of a superapp.
Product synergies
E-commerce (Yahoo), messaging
(Line) and payment (both)
synergies will give their combined
entity the one-stop-shop
potential of a superapp.
Revenue and cost synergies
Revenue and costs synergies will
enable the combined entity to
invest in AI and have the ﬁnancial
strength of a regional superapp.
TheSoftBankrecipe. 36

The ride hailing case.
TheSoftBankrecipe. Pushing synergy further to create winners.
The SoftBank Vision Fund invested in most leading regional
ride-hailing companies in the world. SoftBank has no interest in
competitors
waging a price war, using their dollars to subsidize rides to the
beneﬁt of consumers. Thus, SoftBank pressures them to:
+20$Bn
Invested in ride hailing.
+90+%
Of the ridesharing rides
in the world are in SVF
portfolio companies.
SoftBank’s ride hailing giants:
37
Build partnerships with
other portfolio companies.
Ex: Cambridge Telematics or Light
can work with all of SoftBank’s ride
hailing portfolio companies on
autonomous driving.
Merge or cross-investment
Uber x Grab deal in 2018 where Grab
bought Uber Asia for an undisclosed
sum and Uber took a 27,5% in Grab.
The biggest winner in this deal?
You guessed it: SoftBank!

SoftBank broke the VC playbook.
Its strengths happen to also be its achilles heel.
3

SoftBankbroketheVCplaybook. SoftBank broke the VC playbook.
Don’t bite off
more than you
can chew.
Founder
friendly doesn’t
mean
disregarding
governance.
Bring other
investors
onboard.
Beware of
decreasing
return of
capital.
Don’t put all
your eggs in the
same basket.
SoftBank’s cluster of n°1 and all out play on scale come with downside risks
and breaks key safeguards of investment, teaching us precious lessons:
39

Don’t put all
your eggs in the
same basket.
SoftBankbroketheVCplaybook. Is SoftBank Vision fund over-exposed to a few bets?
Very large bets
SoftBank is very much exposed to a
few very large bets. Among the SVF,
Didi, WeWork and Uber are where they
put the largest amounts, and they
are underwater for at least the two
American companies (november 2019).
$20+Bn
Of invested funds were in
ride hailing businesses
(Didi, Uber, Grab, Ola).
SoftBank’s biggest
bets:
On a very short timeframe
SoftBank invested its money on a
2-year cycle, which is very short,
considering the amounts it is
investing, weighting a risk on its
portfolio diversiﬁcation.
90%
Of ridesharing rides
in the world are made
by SoftBank owned
companies.

Beware of
decreasing
return of
capital.
SoftBankbroketheVCplaybook. Beware of decreasing return of capital.
1 Not such cool kids on the block anymore.
There is not enough dealﬂow on the market to support the
size and number of investments SoftBank wants to make.
2 IPO is the only way out.
There is not enough demand for this type of company exit
in the IPO market in a short amount of time.
3 Beware of raising spoiled kids.
When you pour too much capital into a company, it tends to have
higher SG&A costs and sometimes burn too much cash. Wework’s
salaries were said to be much higher than its competition.
41
When your ability to deploy several billion
$ into a startup company becomes the
priority (SoftBank has to invest over
$30Bn a year) returns are likely to
decrease.
140%
SVF’s portfolio of private
companies is worth
$367Bn, 140% of the
global tech IPO market.
5/10
of largest funding
rounds globally were
led by SoftBank in 2018.
Source: crunchbase, Fabernovel analysis

Bring other
investors
onboard.
SoftBankbroketheVCplaybook. Bring others investors on board.
Sources: Crunchbase
Cumulated funds raised in $m (+ known lead investors) SoftBank often invests alone in subsequent
funding rounds. It has done so particularly in
the Wework and OYO case.
Most cautious investors let third party
investors chip in on their portfolio
companies at subsequent rounds to:
1 provide an external valuation of the ﬁrm
thus strengthening the credibility of the valuation.
2 show signs of healthier governance to the
market.
3 bring new expertises on the board.
42
5 times
Number of SoftBank’s
consecutive
investments in Wework,
both in equity and debt.
Most of the time as sole
investor.

SoftBankbroketheVCplaybook. Being founder friendly doesn’t mean disregarding governance.
Softbank Vision Fund
has demonstrated poor
governance standards at
portfolio companies,
hence the WeWork Fiasco.
SoftBank’s former
governance mistakes:
43
1 Poor valuation estimate risking the entire company.
2 Letting dual class shares mechanisms with 20/1 ratio voting share for founder.
3 No external shareholder besides SoftBank.
4 Blind trust in visionary founders.
5 Conﬂict of interest between governance companies.
In November 2019 (Q2 earnings
report), SoftBank claimed that
it would be more careful in terms
of governance and freedom given
to founders.
Basically, it is just bringing its
governance level up to market
standards.
Has SoftBank learnt its lesson?
Founder
friendly doesn’t
mean
isregarding
ce.

SoftBankbroketheVCplaybook. Scaling the largest fund in the world comes
with its own growth crisis.
Governance
Does Masa have infinite power?
Masayoshi San is renowned for turning
200M checks into 500M. According to
SVF Silicon Valley MD, Masa cannot
overlook due diligence process but
oversees every large deal with a go/no go
decision.
Conflict of interest with
portfolio companies?
With the growing size of companies, SVF
invests in competing tech players, raising
concerns about its role as an investor.
Operations
Softbank faced the organizational issues
of a fund deploying $100Bn in 2.5 years.
/ Opening offices in 5 locations.
/ Recruiting around 300 employees.
This reportedly led to poor efficiency in
terms of operations and organization.
44
Don’t bite off
more than you
can chew.
330M
funds ratio
per SVF employee.
7 times more than
Andreessen Horowitz.

The future of Vision Fund
depends on the strength
of the tech ecosystem.
4

Is there a “SoftBank effect?”4.1

IsthereaSoftBankeffect? Just like a16z in its time, is SoftBank a disruptor?
Andreessen Horowitz circa 2010
A16z secret sauce:
/ Value-added investment
more people working on helping
companies rather than investing.
/ Content as marketing
to appeal to the best founders.
/ Efﬁcient network
powered by events and CRM tool.
/ Founder friendly
Fund for entrepreneurs by
entrepreneurs.
SoftBank Vision Fund circa 2017
SVF secret sauce:
/ Capital as a weapon
more people working on helping
companies rather than investing;
/ New stage of investment
to appeal to the best founders.
/ Ecosystem driven
Fund for entrepreneurs by
entrepreneurs.
47

IsthereaSoftBankeffect? SoftBank shook the VC market.
With over 10% of invested VC funds in 2019, and a fund
20 times bigger than its counterparts Softbank is likely
to have had an impact on the private tech ecosystem.
Softbank
Vision Fund
Softbank Softbank Capital Other Entities
1 Increase in size and share of mega deals.
2 Increase in company valuations.
3 A new exit door for venture capital?
Source: crunchbase
48

IsthereaSoftBankeffect? Is SoftBank impacting the size of deals & funds?
The growth of supergiant deals Requiring superiant funds?
To compete with SoftBank and cope with the
increase of valuations, especially late stage,
several VCs are raising larger funds.
$2.75Bn
$1.85Bn
$8Bn
45%
of known venture dollar volume transacted
in 2019 comes from “supergiant” VC rounds ($100M+)
66%
of total funds raised come from giant
funds (500M+), compared to 31% in 2011.
Source: crunchbase
49

IsthereaSoftBankeffect? Is SoftBank inﬂating tech valuations?
Key reasons contributing to the valuation spike:
/ If you think capital is a weapon,
then mechanically you tend to overvalue companies.
/ SoftBank, as the top take price setter, sets references
for other companies valuations.
/ The fact that SoftBank is enabling companies to stay
private longer inevitably inﬂates private tech valuation.
/ But is it just SVF offsetting public markets return
potential by keeping companies private longer at high
valuation?
A ripple effect on valuations?
,
r
A Masa Public Offering is our IPO,it's important for us to remain
private for at least two to three more years.
Vijay Shekhar Sharma, Paytm founder
SVF
effect?
Public
Unicorns
Private
Unicorns
Series B, C Series A Seed
50

We are extremely symbiotic
with the VC community.

Creating a new stage of investments.
As some tech companies wish to stay
private longer, SoftBank provides
a new stage of funding before IPO.
Thanks to its large tickets, SVF is
investing between series E and IPO,
sometimes replacing IPO, offering
new exit opportunity for late stage VC.
Who’s investing after SoftBank Vision Fund?
28%
25%
18%
10%
20%
IsthereaSoftBankeffect?
Debt
Pension / Sovereign
Large corporates
Private Equity /
Asset management
IPO
We provide liquidity for a lot of VCs to exit, whether
it was in WeWork, whether it’s in Katerra, or Compass.
Rajeev Misra
52

IsthereaSoftBankeffect? Fueling unsustainable growth models?
,
r
53
When SoftBank pours money into
supposedly winner-takes-all
markets, using capital as a weapon
into businesses that hemorrhage
cash, it can have unwanted
implications, as platforms are
easier to scale than to sustain.
Competition distortion
Capital difference becomes so important that
small and old players fail to compete with new
champions.
Price wars
The capital raised to fuel the network effects
leads to price wars for customer acquisitions,
making companies focus on price over value
creation and innovation.
Unsustainable growth models
Theses companies that change the competitive
landscape are often unsustainable because they
don’t have customer lock-in and network effects
often fall as fast as they scale. Anyway, do we
want monopolies ?
2
3
1

A shift in the tech market.
Can SoftBank cope with it?
4.2

Patricia Nakache, partner Trinity Ventures
A lot of these highly valued
companies have run into the
buzz saw of Wall Street, where
they’re questioning or reminding
us that proﬁtability matters.

Ashiftinthetechmarket. The failed IPO of the “most hyped startup in the world”.*
Aug. 14th
Aug. 15th
Sept. 5th
Sept. 9th
Sept. 13rd
Sept. 16th
Sept. 24th
Oct. 23rd
WeWork
releases S-1.
Morgan Stanley
withdraws from
WeWork’s IPO.
WeWork is ready to cut
its valuation by 2.
SoftBank, WeWork's
largest shareholder,
requests the
suspension of the IPO.
WeWork’s board
members announce
major governance
changes.
IPO is ofﬁcially
postponed.
As a result, WeWork's
bonds fall at record
pace (7cts per $).
Adam Neumann steps
down as CEO of
WeWork. He is named
non-executive
chairman.
SoftBank injects
$5bn in WeWork at a
valuation of $7.5-8bn
& takes the control.
Adam Neumann exits
the Board.
*How WeWork became the most hyped startup in the world, Wired (June 2018) Source: Business Insider,
CNBC
56

Source: Factset, as of 31 October 2019
Ashiftinthetechmarket.
Despite very promising starts and some
satisfying earnings, the latest Tech IPOs
were mostly avoided by investors.
Share price
performance
during Q3
Share price
performance
between IPO
and end Q2
Opening price
vs IPO price
IPO Valuation
(before market
opening)
+1%
-22%
+19%
+54%
-13%
-6%
+8%
+26%
+83%
+48%
$82.4Bn
$24.3Bn
$12.7Bn
$9.2Bn
$16.0Bn
-26%
-29%
-28%
-26%
-34%
-33%+83%$9.2Bn -61%
-36%+24%$600M -13%
+54%+87%$6.6Bn -45%
Recent Tech IPOs faced a very difﬁcult Q3 2019.
83%
Last year, a record of
US tech companies
went public without
making a proﬁt.
57

Ashiftinthetechmarket. From the growth to the margin story?
Unicorns starting to shift their strategy. And SoftBank seems to have learnt its lesson.
According to people close to SoftBank, Masa has decided to
shift focus of Vision Fund II to companies that can achieve
profitability more quickly.
Wework shifts to profits as part of
SoftBank’s rescue plan. The
company will stop new openings
and focus on occupation ratio.
Uber
Lyft plans to reach profitability in
2021, claiming that the market has
become increasingly “rational”.
Lyft
Postmates delays its IPO, judging
public markets too cold with
“growth companies”.
Postmates
58

What’s next
for SoftBank?
4.3

SoftBank is still on tracks, but performance is shrinking
7 public listings since
inception
$11.4Bn cumulative Investment gains
...But it’s mostly paper gains since SoftBank
often sets the valuations on a successive basis, and
investment gains include unrealized gains..
60
There are 5,000 VC globally and
average IRR is 13%.
Our return is about twice as big”

Financial markets don’t yet reward SoftBank’s synergy strategy.
As a conglomerate, SoftBank faces a
traditional discount between the total
value of its holdings and its market
capitalization. Yet, in SoftBank’s case,
the discount has been on average
much bigger than market standards,
as investors tend to be very careful
with the japanese giant.
¥21tn
Value of SoftBank’s
net equity holdings
¥10.5tn
SoftBank group
market cap
50%
SoftBank is valued
at a 30 to 50% discount
compared to the sum of
its parts.
61

A domino downfall of the SoftBank kereitsu?
What’snextforSoftBank? How do synergetic companies perform in a bear market?
Though SoftBank is not a keirestu per se
it’s relentless focus on creating synergies with
portfolio companies, can turn out to be risky
in the case of a bad economic context.
SoftBank’s biggest risk comes from the ride
hailing industry, where its portfolio companies
(Didi, Uber, Grab, Careem) have strong equity
and partnership links.
Could SoftBank survive an on-demand
transportation collapse?
62

Amount of losses
Increasing marketing costs
Decreasing ARPU
Lease commitments
...
Tech-like multiples
Lack of comparables
No outside investor
...
CEO’s ﬁrepower
Trademark compensation
Lack of diversity at the Board
….
What’snextforSoftBank? Can SoftBank afford another Wework?
Business model Valuation Governance
Increasing losses
high CAC (minimum revenue
guarantee)
But
huge growth 15x annually
scale economies
Tech-like multiples
No outside investor
Lack of comparables
Business model Valuation Governance
CEO’s equity $2bn loan
Collusion probe with marketplace
Almost SoftBank owned
63

What’snextforSoftBank? Will SVF be able to raise Vision Fund II?
1 LPs are waiting for results before chipping in with
more cash.
Saudi Arabia PIF & Mubadala may be reluctant to
rebid a large amount of money before they see the
performance of the fund at least for the next 6
months.
2 Questioning the strategy and investment thesis.
SVF seems to be shifting towards a more diversiﬁed
strategy and smaller tickets. Questioning SVF
governance are being tackled by SoftBank in its
latests earnings.
3 Stuck in a vicious media storm.
The Wework ﬁasco has put SoftBank at the core of
a media storm that doesn’t seem close to stopping.
Will it alter its strong relationship with LPs?
Vision Fund 2
28/11/2019
Vision Fund 1
$98Bn
64

What’snextforSoftBank? Success or failure, one question remains:
Do we really want this to be the future of Venture Capital?
Dirty funding
SoftBank’s checks are
largely financed with
petro dollars coming
from dictatorship regimes.
Should entrepreneurs
take this into account?
60% of SVF funds
coming from PIF & Mubadala.
Poor Governance
SVF’s governance can be
questioned in several ways:
/ creating synergies between
portfolio companies at their
benefit
/ pushing employee
debt to invest in SVF.
/ Poor gender diversity
in the organization.
0/12 of SVF partners
are women.
Technological
messianism
SVF’s investments follow
a pure financial logic, with
poor consideration of
second order consequences
(job creation, environmental
impact).
Moreover, most of SVF’s
investment are driven
by a techno-centric vision
of the future that seems
to put economic efficiency
before any other value.
65

Research
Joachim Renaudin
Agathe Martin
Guillaume Gombert
Art direction
Mathilde Benoît
Elodie Da Silva Costa
Communication
Joachim Martin
Marina Dislich

Thank you
Jean Christophe LIAUBET
Partner
+33 6 08 86 24 88
jean-christophe.liaubet@fabernovel.com

Fabernovel study on SoftBank

More Related Content

What's hot (20)

Similar to Fabernovel study on SoftBank (20)

More from Fabernovel (20)

Recently uploaded (20)

Fabernovel study on SoftBank