
Masayoshi Son, SoftBank, and the $100B Blitz on Sand Hill Road - pdog
https://www.bloomberg.com/news/features/2018-09-27/masayoshi-son-softbank-and-the-100-billion-blitz-on-sand-hill-road
======
jbhatab
"Son tells Bloomberg Businessweek that he plans to raise a new $100 billion
fund every two or three years and will spend around $50 billion a year. For
perspective, in 2016, the entire U.S. venture capital industry invested $75.3
billion, according to the National Venture Capital Association."

This is an absurd statistic. If that's actually true, startups have a long and
potentially exhilarating road ahead of them.

I wonder what this would do to the startup landscape in the long term though.
Will this make startups look more like big incumbents more than a sprawling
landscape?

~~~
adventured
I'm a fan of Masayoshi Son's audacity. However, the outlandish premise floated
in the article (raising $100b funds every few years) is all premised on the
back of the freak Alibaba return being repeatable over and over again. That's
not going to happen, there's one China and its boom phase is mostly over. The
last China-like outcome, was a century prior to that (the US).

I watched Masayoshi Son make the same mistake of incorrect extrapolation, 20
years ago.[1] The pitch - the same one he made 20 years ago - only works while
the tide is high, when the tide goes out it's ugly. There were countless
articles touting his 300 year plan for the future back then, while he was
riding very high on the epic Yahoo returns (at one point his investment into
Yahoo was worth something like $44b, a particularly huge return to generate in
a short amount of time back then). Alibaba will have legitimate staying power,
unlike Yahoo's bubble valuation circa 1999/2000, however it won't change the
fact that there aren't going to be endless lines of Alibabas to generate vast
returns off of to justify raising $100 billion every few years. Alibaba will
prove as rare in China as Microsoft or Google are in the US.

[1]
[http://content.time.com/time/world/article/0,8599,2053732,00...](http://content.time.com/time/world/article/0,8599,2053732,00.html)

~~~
mrhackerpoland
There is India around the corner with Japan having excellent ties with it.

Next Alibaba will be in India and Mayoshi probably knows it.

~~~
adventured
That's definitely not a sure thing. For example here are the GDP comparisons
between China and India going back to 1975.

GDP, five year increments

India $100b (1975) | $190b | $236b | $326b | $366b | $474b | $834b | $1.68t |
$2.1t (2015)

China $163b (1975) | $191b | $309b | $360b | $734b | $1.2t | $2.3t | $6.1t |
$11t (2015)

They started out in close proximity, were identical by 1980, and they ended up
35 years later with a 5x difference between them. Why? Poor choices that India
made along the way. The point being, the sort of growth China has seen is not
automatic, it isn't a given at all that India will make the right choices that
lead to it becoming another economic superpower. It _may_ make the right
choices. China was only able to generate that expansion through very
aggressive focus on traditional industry and manufacturing. India isn't
following anything like the path that China did, I don't see where they're
going to generate the extraordinary foreign investment that China did by using
old-style manufacturing as a magnet for capital that they could then reinvest
into domestic expansion. To say nothing of the fact that that style of
industrial empire and manufacturing is disappearing, and that disappearance is
going to accelerate with leaps in automation that are happening now. It's
being discussed as an advancement trap for developing nations, where the
ladder of advancement gets wiped out for developing nations by AI, robotics,
etc (eliminating jobs that otherwise could employ hundreds of millions of
people in places like India and China).

------
Animats
_It has already committed $65 billion to acquire big stakes in Uber, WeWork,
Slack, and GM Cruise._

Uber and WeWork[1] are money drains buying market share. GM Cruise is a "fake
it til you make it" operation. Is Softbank the biggest dumb money operation of
all time?

(WeWork is strange. Most real estate businesses buy property and rent it out.
WeWork rents property long term and rents it out short term.)

[1] [https://news.crunchbase.com/news/wework-details-run-rate-
rev...](https://news.crunchbase.com/news/wework-details-run-rate-revenue-and-
fake-profit/)

~~~
testb
What makes you say Cruise is faking? The disengagement data would suggest
they're the most viable self-driving car venture behind Waymo.

~~~
shanghaiaway
The technology isn't there. There will never be self driving cars.

~~~
contingencies
_If the world should blow itself up, the last audible voice would be that of
an expert saying it can 't be done._ \- Peter Ustinov, via
[http://github.com/globalcitizen/taoup](http://github.com/globalcitizen/taoup)

~~~
nojvek
Cruise seems to operate like it has an unlimited reserve of money. They also
have a bit of a broculture. They are hiring like wildfire.

All self driving tech is in its early days to call it “self - driving”. So it
will be interesting to see how the future pans out.

May be you can indeed keep on throwing ridiculous amounts of money and
something and make it work. May be not.

------
nelsonic
This is only going to fuel ( _accelerate_ ) the tech bubble helping already
bloated unicorns _burn_ more cash.

Masayoshi is _unquestionably_ a smart guy, but he's making some pretty big
bets on an uncertain future.

Uber has raised $22.2B so far and made a $891M Net Loss in its second quarter
ending June 30. It's difficult for a mere mortal to see how Uber will ever be
_profitable_ considering the cumulative losses.

~~~
loceng
My only hope and concern is whether these companies produce actual technology
and benefit for society, or if their plan is to dump all of the risk at an
unreasonable valuation onto the public markets to make their returns. Uber is
an example, where yes, they along with others highlighted a market exists -
and helping disrupt the status quo (shifting less efficient, more expensive
systems, with modernized and potentially less expensive) - however they're not
dealing with the indirect costs associated with less expense in this case,
such as are drivers earning enough now to survive in the current structure of
the economy - and what happens to drivers, as well as other workers, once we
get closer to fullest autonomy possible?

------
oooglaaa
Saudi Arabia invested 45% of the 100B. It’s rare for a state to make such
risky investments.

Either they have a lot of available capital, and the 45B is nothing but a line
item, or they’re trying to dig themselves out of a hole and they need to take
on big, risky investments to do that.

~~~
pterhx
I don't know if $45B is a line item to them, but to give you a sense of scale
of how much money the Saudis have, Aramco had a net income of about $34B in
the first half of 2017 [0].

[0]
[https://www.bloomberg.com/gadfly/articles/2018-04-13/saudi-a...](https://www.bloomberg.com/gadfly/articles/2018-04-13/saudi-
aramco-may-have-to-settle-for-just-a-trillion-or-so)

~~~
oooglaaa
That’s insane. That’s more than Apple, Amazon, and Alphabet’s 2017 net income
_combined_.

How does a commodity business (oil and gas) generate so much profit?

~~~
cookingrobot
Unlike (almost) every other business on earth where you have to do work and
compete with peers to make a profit on your efforts, all the value of oil is
sitting in the ground underneath them. Oil wealth is just luck of being born
on top of the right geology.

~~~
lotsofpulp
And being part of an extremist tribe who were useful to the Brits/Americans
versus the Ottomans in World War 1, who then continued to provide a “stable
source” of oil. Stable because they stamped out any sort of democracy or
society with freedoms that would allow anyone to object to their arrangements
with the West, in exchange for one family of the tribe to become extremely
wealthy.

------
enahs-sf
You could do a lot of interesting things with a fund of that size. It also
changes the landscape of late stage and growth companies because they can now
potentially raise at valuations that allow them to utterly dominate their
competition. This has always been the dream for entrepreneurs: figure out
product market fit, then raise insane amounts of money to pour on growth. If
you’re a couple orders of magnitude away from your next closest competitor,
it’s going to be tough for them to compete.

------
sytelus
I have a feeling that SoftBank would be $1 trillion organization by the end of
2030. Let me explain why. The entire magic here lies in the ability to through
lots and lots of arrows and this ability is gained only when you have reached
a critical mass in terms of fund size. As an example, here is YC facts:

 _YC started in: 2005

Number of companies funded (2017): 1,450

Approximate investment: $200M

Valuation of all companies: $80B_

People here will be quick to point out that there is a difference between
valuation and realized cash. Also that there is pg magic that is missing in
other funds. For the first objection, let’s cut down valuation to just 25%of
what they claim, ie, $20B. For the second objection, I had say there have been
couple of semi-scientific studies that pointed out that YC is doing just
10-20% better than other funds of same size and that predicting startup
success if futile and that your only real recourse is to have lots of arrows.

So timided down YC data suggests that if you have fund of certain critical
size you can ignite the chain reaction and watch the magic of compounded
growth. YC has showed approximately 100X return over 10 years. There is no
other financial vehicle that does this.

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officialchicken
If that much capital is available without all of the regulatory burden... does
this mean the end of traditional IPO's and using something like profit sharing
in order to return the capital investment?

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baybal2
Current leader of Saudi Arabia is not a smart man, this is the only reason Son
managed to coax them into this.

Remember, the true nature of that fund is floating right under ones nose - it
is a nation scale LBO scheme, backed by enormous amount of debt.

They look to buy few other monopoly businesses that they hope will be making
money with the same ease as oil, but, obviously, that's not possible.

A very naive assumption on their behalf.

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maym86
Can huge funds like this run into monopoly issues when they own a significant
part of multiple large companies in a space?

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snaky
> the prospective investors—executives from a state-owned fund in the Middle
> East

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noddy1
Thanks SEC for ensuring that all the returns from high growth tech companies
are accruing to foreign billionaires and corrupt oil princes rather than to
american retirement accounts and pension funds!

~~~
throwbacktictac
How is the SEC liable? Is there some regulation preventing US investment
houses from investing in the same manner?

~~~
ryanmcgarvey
Unsophisticated Individuals certainly can’t invest in private equity, but I’m
curious if there are similar rules against a pension fund or other such
collection of unsophisticated money having high risk assets in their
portfolio.

