SoftBank launches a $100 billion fund: Can you find the next Alibaba

　　Masayoshi Son, founder of SoftBank Group, grew up on Kyushu Island in southern Japan. When Masayoshi Son was a little boy, he wrote down a new invention he wanted to create in a notebook. Many years later, Masayoshi Son is about to use a $100 billion fund to help the technology community turn the "next big thing" into reality.

　　SoftBank announced the launch of a world-renowned technology fund on Saturday. Funds come from Saudi Public Investment Fund, Abu Dhabi, UAE, and technology companies such as Apple and Qualcomm. The Vision Fund has a size that private equity funds or venture capital institutions cannot reach, with a capital scale equivalent to 4 Silver Lake Capital or 15 Sequoia Capital.

　　(Yasir Alrumayyan, Secretary-General of the Saudi Public Investment Fund (PIF) (picture right))

　　Masayoshi Son claims he has formulated a 300-year plan for SoftBank Group to build the world's most valuable company. With Vision Fund, Masayoshi Son will become the most powerful technology investor in the next decade, and his focus includes artificial intelligence, interconnected devices, satellites and human-machine fusion. In April this year, Masayoshi Son led a $5.5 billion investment in Didi Chuxing, setting a record for the highest venture capital investment.

　　"We have witnessed the outbreak of the PC industry and experienced the rise of the Internet," Son said during a conference call with shareholders in February. "I believe the next 'big explosion' is bigger. We need to be prepared for the future, and SoftBank Vision Fund was born for that."

　　Son's initiative has many strong supporters. After a meeting with Masayoshi Son, Saudi prince and deputy prime minister Mohamed bin Salman announced that Saudi state capital will contribute $45 billion to SoftBank Fund. In addition to Apple and Qualcomm, Foxconn and Sharp are also fund investors. In a statement on Saturday, SoftBank said the fund has locked in $93 billion in pledged funds and will increase the funding to $100 billion in the next six months.

　　Masayoshi Son's giant fund plans to inject unprecedented capital into industries that have been considered overcapital. Due to too much capital and too little transactions, the investment returns of private equity funds have dropped sharply in recent years. Venture capital faces similar problems.

　　"The $100 billion fund is incredible. There is already too much capital, and it doesn't make any sense to bring more capital," said Steven Kaplan, a professor at the University of Chicago Booth School of Business.

　　(Masayoshi Son was at a press conference in February)

　　Masayoshi Son's giant fund reminds Kaplan of the Internet bubble in the late 1990s. At that time, large investments poured into American Internet companies, and the company's valuations were all so high that they were scary, and the capital carnival ended in a bubble disillusionment.

　　Private equity firms are breaking records of cash reserves. Research firm Preqin said that as of the end of 2016, the amount unused reached $820 billion, up from $755 billion in the same period last year. The total venture capital investment reached US$142 billion, up from US$127 billion at the end of 2015.

　　Preqin points out that there are too many of these 'dry explosives' (Dry Powders) and investment opportunities are becoming increasingly rare. "Dry explosives" refers to the cash to be invested in the hands of a private equity company.

　　In other words, there is also danger behind Masayoshi Son's strong investment capabilities of a hundred billion US dollar fund. The most important thing is that a large amount of capital is pouring into artificial intelligence or driverless cars, the company's valuation is inflated, and more competitors appear, making it difficult for everyone to make money.

　　However, Masayoshi Son never seems to be afraid to challenge people's expectations. He left Japan to study in the United States at the age of 16 and graduated from the University of California, Berkeley in 1978. When he was a student, he invented an electronic translator and sold the product to Sharp to earn his first $1 million in his life.

　　"He seems to be from the future," said Hong Lu, co-founder of UT Starcon, who worked for Son in California 40 years ago.

　　Masayoshi Son founded his own company in 1981, distributing software for companies such as Microsoft in the initial stage. Later, Masayoshi Son grew and grew through a series of bets. He acquired the poorly managed Vodafone Japanese business and turned it into a profit machine.

　　Fearlessness and courage did not always bring him good luck. Masayoshi Son invested in about 800 companies during the Internet bubble, claiming to build a "net valve" in the digital age (i.e. a variant of the Japanese "chaebol" in the digital age). At that time, SoftBank's stock price rose sharply, and Masayoshi Son's net worth reached US$68 billion in 2000, almost surpassing Bill Gates to become the world's new richest man. The subsequent burst of the Internet bubble left his investments completely dead, and his stock value evaporated by 99%.

　　However, in the ruins, some people still survived. Masayoshi Son was an early supporter of Yahoo and also bet on Alibaba, one of SoftBank’s wisest bets. SoftBank invested $20 million in Alibaba in 2000, and now SoftBank shares are worth more than $90 billion, which is 4,500 times the initial investment.

　　Even if the investment is wasted, Masayoshi Son will not show fear. He continued to make big investments, including the $22 billion acquisition of US wireless carrier Sprint. Last year, Masayoshi Son finalized a larger deal and bought chip maker ARM for $32 billion.

　　The acquisition of ARM will put SoftBank on greater debt, and SoftBank's stock price plummeted 10% after the announcement of the acquisition news. Jefferies analyst Atul Goyal bluntly stated that the acquisition of ARM "is contrary to SoftBank's investment strategy."

　　Masayoshi Son responded that this is a rare opportunity in history, and the rapid evolution of technology provides a once-in-a-lifetime opportunity.

　　"People think it's a stupid move, they vote with their own money," Son said. It means it is easy to just look at the moment, while he completes 10, 20 or even 50 steps in one go.

　　This is also the basis for the establishment of the Vision Fund. Masayoshi Son saw a lifetime of opportunities, but SoftBank investors were worried about the risks. The key to the problem is where Masayoshi Son goes to find new investors for the fund.

　　The Saudi crown prince, who was worried about spending money, visited Tokyo at the right time last September. His country became rich from oil, and he was looking for diversified investment methods for national capital. The prince plans to invest billions in emerging industries and has formulated his own Vision 2030 plan.

　　The news of the establishment of SoftBank Vision Fund was only announced in October, and Masayoshi Son couldn't wait to deploy investments before the financing ended. An internet company called OneWeb received a $1 billion investment, which aims to provide network connectivity covering every corner of the world. Son also invested $300 million in New York startup WeWork, whose main business is to provide office space for small businesses and freelancers.

　　The Vision Fund was established because Masayoshi Son saw a more promising business than Alibaba. During the February conference call, he mentioned the sharing economy model represented by Uber and Airbnb.

　　SoftBank is a major investor in Uber's rival Didi. Didi is currently a well-known taxi service company in China, and announced last month that it had completed a US$5.5 billion financing led by SoftBank. According to people familiar with the matter, Southeast Asian taxi company Grab plans to raise more than $1.5 billion with the support of SoftBank.

　　"Uber is redefining the transportation industry; Airbnb is doing the same for the hospitality industry. You can expect this to happen in every industry," Son said in February. He gave some details of capital deployment, which may be that many small investments similar to OneWeb are cooperating with large transactions.

　　"This is not a typical fund," said Son. “Most of our investments will be between 20% and 40%, which is enough to make us a well-known shareholder and board member to discuss company strategies with our founders.”

　　Masayoshi Son personally has an extraordinary impact on investment. People familiar with the matter said that Masayoshi Son is the only so-called key figure in the fund. Usually there will be multiple key figures in a fund to make a decision together, and if one of them chooses to leave, the other partners can also choose to exit.

　　Traders are cautious about this. Ted Gooden, managing director of Berkshire Capital Corp., predicts that the rate of return may not be satisfactory given the excessive capital.

　　Not everyone is optimistic about SoftBank Vision Fund. David Brophy, a professor of finance at the University of Michigan, said the huge scale of SoftBank’s fund will give Masayoshi Son an unmatched advantage. He can handle capital-intensive transactions calmly and investments can last longer.

　　"You can act with power that no one else has," said Brofee, who is also director of the university's private equity finance research office. “I won’t pay much attention to what I see in the rearview mirror, and looking forward is more important.”

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