
SoftBank has walked away from startups, months after submitting term sheets - jmsflknr
https://www.axios.com/softbank-walk-away-startups-honor-creator-seismic-8d4adc0c-dcfb-42d3-982e-f422a9963be8.html
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xivzgrev
...duh? They just had WeWork blow up in their face and naturally they're going
to pump the brakes. There were probably a lot of in-process deals going on.

Coming from someone who worked in a company that received Softbank investment,
it's a huge hassle. The ONLY reason to take Softbank money is to get a huge
sum of money at a huge valuation and reduce your "cost" of said money. But for
me personally, the costs aren't worth it.

First, there's the inflated valuation. It's a great MO for Softbank - they get
you by stroking your ego and flashing big (exaggerated) valuations. But does
anyone ever think about the next round? No one else after is going to invest
at that valuation + extra, unless you really knocked it out of the park, so
you are stuck with them for future rounds. Or IPO (Hello Uber). Startups are
hard - why are you making it more difficult for yourself to succeed?

Second, the ongoing effort. You don't have one or two guys at a VC firm you
are working with, you have a bureaucracy you are working with, in a completely
opposite timezone, with a very different working culture.

 _Maybe_ it makes sense for a company who is on their last round of funding
before IPO, just needs one last cash push to get everything there, and can pay
a bunch of people to deal with the BS. But that's not most startups.

~~~
streetcat1
So if I have two VC approaching, once offered me 1M for 20% and the other one
offered 10M for 20%, I should take the first one?

~~~
andreilys
Depends on the VC.

$10M from someone who built their wealth via blood diamonds is very different
from $1M from a well-connected VC that can help your business in a tangible
way

~~~
streetcat1
How can you tell which is which. Does the LP tell the VC where did they get
the money from?

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andreilys
If you’re giving a sizeable chunk of your company to an investor you better do
your due diligence.

Whether it’s contacting founders who previously received money from the VC, or
plain old web research. It’s really dumb to take money from someone who can
make life difficult for you down the road

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brenden2
They're trying to make this a story about SoftBank being bad, but this just
sounds like normal business. I have been "shafted" by VCs before, in similar
ways, but none of them were SoftBank specifically. This is just an attempt to
make a story (and drive clicks) out of the punching bag du jour.

~~~
JumpCrisscross
> _this just sounds like normal business_

All except Creator. Getting a company to enter into "an exclusive, six-month
term sheet" is unusual and shitty.

~~~
jagged-chisel
Having read this, I'd think (as the startup) I'd insist on a clause that the
contract isn't binding until at least $X or %Y have been received from the VC
(defining "received" as "the money deposited and cleared.") And if we find
another investor before you send the money, the contract is dead and we
renegotiate a new one.

~~~
jethro_tell
If you have the leverage for that, it could work. But you probably also
wouldn't sign a 6mo exclusivity deal if you had that kind of leverage . . .
so?

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code4tee
Term sheet isn’t a deal. Same way an “accepted offer” on a house isn’t a
purchase contract until you have an actual contract.

Clearly SoftBanks is having its challenges but this just sounds like normal
deals falling apart during pre-closing due diligence. You don’t have a deal
till you have a deal.

~~~
yorwba
AFAIK, in contract law, an "accepted offer" _is_ an actual contract, even if
there's no paper record of it (though it may be a bit hard to prove acceptance
without one). However, when someone puts their house up for sale, they're
usually not offering it to anyone yet, rather they're inviting others to offer
to buy it.

I think a term sheet is also just an invitation, not a binding offer.

~~~
Nursie
Likely depends on the country - in England, on a house sale, either party can
back out after an offer is accepted, free of consequences, until contracts are
exchanged.

~~~
hirako2000
And there are unwritten rules in the solicitors community, do that a few times
and you are blacked out.

~~~
dmurray
Does this work? For house buying, solicitors are often taking on first-time
clients, and they don't have a lot of leverage against the client if the
client decides to renege on the deal.

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moralestapia
Funny that both Honor and Seismic seem like good deals from a quick skim. Both
have established their products and markets clearly, pull on decent revenue,
have been growing continuously, no scandals, no weird CEOs, nothing illegal,
no "break it till you make it" attitude. They are both on sectors which are
extremely profitable and whose customers' churn rate is relatively low.

SoftBank: Nah, I think I'll pass.

~~~
seemslegit
" Seismic ia San Diego-based maker of B2B sales software that's raised over
$180 million in VC funding, most recently at a $1 billion valuation, from
firms like General Atlantic, Jackson Square Ventures, Lightspeed Venture
Partners, and JMI Equity., "

Who would be shafted if that deal went through ? Those valuations are just not
credible anymore - it's more likely that SoftBank recent experience has made
them shaft-averse.

~~~
gvb
That is a different Honor than the one stated in TFA:

 _Honor is a San Francisco home care company for older adults that 's raised
over $100 million from firms like Andreessen Horowitz, Naspers, and Thrive
Capital._

~~~
seemslegit
My bad, meant Seismic - corrected.

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JumpCrisscross
Term sheets are not binding. An expectation of a term sheet is more tenuous
still. Little described in this article approaches "shafting". (Creator's
6-month exclusive term sheet being the exception. But, like, hamburger
robots.)

> _Given we’re a fiduciary and investing very large amounts of capital, our
> investment process is more rigorous than unregulated investors and typical
> VCs._

Hilarious. Rigorous process? SoftBank?

Also, who regulates the Vision Fund? Do they think they’re unique in having a
fiduciary duty to their LPs?

~~~
rdlecler1
They are a registered investment advisor unlike most VCs who have a VC
exemption. a16z also took this step to give them more flexibility.

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arcticbull
Remember folks you haven’t raised anything until the check clears.

~~~
privateSFacct
Right - the term sheet is the "price sheet". The buyer still has to buy.

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rdlecler1
Even worse, SB now casts shade on the startups by claiming they do more
rigorous diligence with the implication that if a deal doesn’t close it was
because something was wrong with the startup.

~~~
wmf
If their new diligence is so rigorous that they don't invest in anything it
doesn't mean much.

~~~
johnsimer
Could mean there are few startups out there seeking SB types of money that are
actually good startups

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Zigurd
That term sheets are not binding is technically correct (the best kind of
correct, I'm told). But it should be so reputationally bad that it should only
happen among third tier players and wannabes who don't have reliable limiteds.

~~~
jacquesm
I've had a VC walk out on a signed terms sheet due to 9/11\. I didn't like it
but totally understood their motivations and it's hard to enforce a terms
sheet. Still, it was less than classy and I would not attempt to do business
with them again.

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privateSFacct
They really need to share more details of these term sheets that fell through
so we can confirm they were either binding or signed.

"Term sheets are non-binding, and even though they should signify a VC has
conviction in investing in you and is ready to move towards closing, they fall
through more often than most founders may expect." \-
[https://techcrunch.com/2015/05/22/three-reasons-your-term-
sh...](https://techcrunch.com/2015/05/22/three-reasons-your-term-sheet-may-
fall-through/)

If these were signed term sheets and the investor has done a few weeks of
legal / financial due diligence - then yes - not common. If these are deal or
talking point term sheets with no definitive agreement and little formal due
diligence - then those do fall away more often.

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perlgeek
> our investment process is more rigorous than unregulated investors and
> typical VCs

that would be easier to believe if the wework screw-up hadn't happened.

~~~
hluska
I’m a sample of one and this is anecdata, but in my experience with VCs, there
is due diligence and then due diligence after that firm has a major disaster.

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jjmorrison
I don't read anything here that isn't par for the course when it comes to
fundraising. This is how it works with all VCs. Money isn't in the bank until
it's in the bank. I get the frustration that it wastes time, but for better or
worst, that's the game today. It might be a problem worth discussing, but if
so, it's a venture capital problem, not a Softbank problem.

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ping_pong
This sounds like VC 101. Same tactics, or worse, occur at all VC firms across
Silicon Valley.

~~~
freddier
This is definitely not true. It's extremely rare for a term sheet to be
pulled.

~~~
ping_pong
A quick google search will educate you on how you are wrong. It's not
extremely rare at all.

~~~
nl
It's very rare for a major fund to be pulling multiple term sheets at once.

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blueadept111
"Time is one of a startup's most valuable assets, and several startups and
their CEOs have been robbed of time by SoftBank's actions"

Oh boo hoo! The line up for getting someone's else money slows down sometimes?
Or even stops! The nerve!

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neximo64
Ok lets start the countdown for the "How softbank turned around" headline. VC
investments are just that some go bad and some go well. Wework could
eventually end up fine still. They go big or go home, for now its home and
then there's dusk.

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bitKong
This looks more like a bad painting of softbank, though deals can go either
way and at best softbank should do better at their own due diligence before
making interest/commitment by way of term sheet and All tha

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grumple
Two of those three startups are clear losers. Not surprising.

~~~
opendomain
Which two? Why do you think that?

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grumple
Honor and Creator.

Honor is trying to enter an established industry full of complex legal
entanglements and where there are already tons of players. They aren't
revolutionizing this space at all. I mean, it's fine as a traditional business
goes as far as I can tell. Why is VC involved?

Creator is going the wrong direction for food imo. Fast food has been on the
decline for several years. Assuming we have more good economy to come than
bad, this will only continue. People want high quality products, healthier
products, and customized products. And sometimes a human experience. What will
happen to this machine and the food when the novelty wears off? They'll get
neglected like vending machines, or start breaking down due to cut corners in
maintenance. The burgers look pretty bad and the reviews seem to agree. Maybe
I'm wrong about this one and this is the golden fast food standard of the
future, but I'd want to see more of those problems handled.

