
SoftBank’s debt obsession - devy
https://techcrunch.com/2018/11/06/softbanks-debt-obsession/
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pkaler
Note that Masayoshi Son has the distinction of losing the most money in
history when he lost approximately $70 billion during the dotcom crash. He
still has a net worth of $23 billion.

Win big. Lose big.

[https://en.wikipedia.org/wiki/Masayoshi_Son](https://en.wikipedia.org/wiki/Masayoshi_Son)

~~~
lostgame
Here's an ArsTechnica article with more specifics:

[https://arstechnica.com/information-
technology/2012/10/how-s...](https://arstechnica.com/information-
technology/2012/10/how-sprints-new-boss-lost-70-billion-of-his-own-cash-and-
still-stayed-rich/)

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gammateam
The article plays on the cultural anathema to the word debt in the following
ways:

It mentions specific interest rates only once, which are paid to a subset of
investors in the vision fund. It briefly clarifies how none of this is an
insane level of debt, just a large number.

It then spends the rest of the article talking the existence of bonds and
interest bearing securities, with no distinction of what they are except "hey
look, a DEBT security"

It mentions how it is as large as the public debt of a nation state, after
qualifying the alarm with subsets of a subset of one of the entity's balance
sheets.

By this part of the article, we are actually talking about the Softbank
entity's "operating basis", which was a big pivot away from what 2/3rd of the
article was talking about which was the Vision Fund doing all the cool
investments.

Just.... be discerning.

The general counterpoint would be that it is great that a fund structured this
way is trying to back illiquid private equity. It is nice that investors get
the opportunity to have exposure to the hottest deal flow on the planet, with
an entity that can push for liquidity.

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soVeryTired
> The general counterpoint would be that it is great that a fund structured
> this way is trying to back illiquid private equity.

Sorry, I don't understand your point at all. Why would the fund's structure
affect its investment mandate?

~~~
gammateam
They aren't mutually inclusive aside from the fact that nobody does it, for
several good reasons.

The investment mandate is written on paper and has nothing to do with the
fund's structure. Nobody makes investment mandates with funds that are
structured that way, except Softbank. Shrug emoji.

Typically an investment into a fund is done with shares which bear no
interest. This means that no money is being pulled away from the fund while it
invests in things which cannot be liquidated.

Softbank is investing in things which cannot be liquidated, all while money is
flowing out of the fund to a large portion of shareholders at 7% a year.

~~~
lquist
It's a risky structure but Softbank continues to hit it out of the park with
bets at a size that nobody else can match. Also the positions can be
liquidated it just takes time

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samstave
There has been a lot of talk (and speculation) in the past regarding Softbank
being 1. the avenue for Saudi Investment of their (est.) $Trillion++ as the
hedge against oil's future and 2. The apac version of HSBC/DeutscheBank
laundering schemes.

Anyone have any speculation on the veracity of these rumors?

Basically, WRT the debt risks that Softbank is taking, it suggests that they
don't care about the risks, because they need to launder+invest the monies
they can regardless as quickly and with as much volume as possible to
legitimize and profit...

~~~
jbhatab
I'd like to learn more about this and their motives. It'd be a little alarming
if the US government was the top investor in the top vc firm buying up massive
stakes of top SV companies. But maybe im unaware of how much investments
America and other countries make like this.

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JBReefer
I don't know if the government does, but plenty of individual states have
investment funds or pension funds that do VC work. Apprenda, my old employer,
was partially backed by the a New York State pension fund

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smallgovt
Does anyone know if any of the term sheets for these $1 billion+ deals have
ever been made public? I'm really curious what the ins and outs are.

Alternatively, any accurate data on what market terms are for these humongous
rounds?

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baybal2
Plainly and simple: Vision Fund is a giant LBO scheme for Saudi money. Any
other interpretation does not make any sense financially.

Vision fund is knee deep in _SHORT TERM_ debt – thus, they have to make money
fast. They look for stuff they can flip quickly, and "Pets.com style"
companies are ideal targets for that.

~~~
sonnyblarney
To be fair, the Saudis have so much money it's hard to place, and therefore
have to accept riskier terms. So maybe this is realistically the best they
could do. And so Softbank can get away with better terms.

~~~
verbify
I've never understood that argument. Can't they just sink more money into the
stock market?

~~~
sonnyblarney
Supply and Demand. More demand is better terms for stock sellers, i.e.
companies. And their investing would probably completely skew the market. So
it's hard. Investing directly might put them at risk of some kind of oversight
as well.

And they already have a lot tied up in those kinds of investments anyhow. They
own a lot of real estate around the world as well.

It's hard to find places to park that amount of money esp. if there are
political considerations. Nobody is worried about taking money from the
Norwegians ...

~~~
verbify
But there's more than one stock market - there are so many around the world,
surely them buying couldn't make that much of an impact?

~~~
sonnyblarney
" there are so many around the world"

Not really. Or rather, they are smaller in terms of market cap. Also - you
basically have US and EU, the rest are very high risk, and subject to all
sorts of shenanigans.

That's how much money the Saudis have.

We need to go clean nuclear, it would solve so many problems ...

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soared
// Oversimplified napkin math for fun, stop taking this seriously //

> Around 60% of the money promised to the Vision Fund by investors other than
> SoftBank takes the form of debtlike securities that earn a 7% fixed return
> annually.

They get $70B and have to pay 7% fixed annually. S&P rate of return on average
is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing
in an index. With $70B you could stay solvent longer than the market can
remain irrational, so you're operating with very little risk. (Ignoring all
the difficulties in investing that much, etc)

Maybe SoftBank likes debt because even if they have no where to invest they'd
still make $2B/year.

EDIT: This isn't a serious comment, literally just throwing numbers in the air
for fun. I know very little about investing.

~~~
ericjang
Is there a strong reason as to why a 9.7% annualized return on the S&P is a
correct assumption we should make about the future?

I feel like in the 21st century, a lot of folks have come to put a lot of
faith in the "stocks in the long run" mantra.

But any stationary effect in the markets can be arbitraged away. If 9.7% long-
term returns were guaranteed, wouldn't everyone just borrow 30-year loans on
margin at 5% interest rate and invest it in S&P?

Edit: agree with sibling comment. If one loses 27% in the first year and makes
9.7% annually after that, they would be operating at net loss. So even if
long-term gains were assured, volatility can still make investing on borrowed
money unprofitable.

~~~
soared
9.7% (or maybe 0.8%) is the average over the last 90 years and I don't think
there is any other data points you could reasonably use to say it won't
continue like that over a long enough time frame.

~~~
kcorbitt
Well, over the last 90 years the USA moved from important regional power to
the economic and military hegemon of the world. That's quite the wave to be
riding as a US stock market investor. It's also quite a hard act to repeat.

To maintain the historical growth rate, you have to believe one of the
following two things, or some combination of them:

1\. The US will continue to amass a larger share of the world's wealth,
indefinitely.

2\. The economy of the world at large will begin to _also_ grow ~10% a year, a
number far in excess of the historical average or any well-informed estimate.

Personally, I wouldn't make that bet.

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polskibus
I wonder how are the downside-protecting elements and that unusual debt based
financing structure affecting Uber and other large companies that SoftBank
invests in. Is it possible that Uber collapses because of the 7% yearly coupon
that SoftBank fund must produce ?

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kenneth
There is no risk of SoftBank's financial situation causing a collapse at one
of the companies in which they hold a minority stake. The worst that could
happen is they don't fund Uber the next time they need funding.

~~~
polskibus
That would depend on the term sheet, wouldn't it? 7% guaranteed yearly return
may require unusual conditions on the investment side.

~~~
andrestan
Sure, that's possible but then you're just dealing with relatively blind
speculation. I would assume there's no issues on the investment side unless
there's strong reason to believe there is.

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_jal
The article offers one reason to wonder:

> [...] its term sheets — from what I hear — are heavily laden with economic
> terms that give SoftBank huge downside protection.

How much weight you want to give that, well.

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sytelus
Virtually all companies including GOOG, MSFT, FB take on same amount of debt
as their cash on hand. The thing is that even at 5-7% interest rate, it is
fairly easy to find use of money that easily pays off interest and leaves
money in hand. So if you have X dollars, you borrow again it to get another
$X. Your net revenue would typically increases by billion or two dollars.

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synaesthesisx
Is there any public, comprehensive list of SoftBank-funded startups available?

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dharma1
[https://www.recode.net/2018/2/5/16974032/this-is-where-
chart...](https://www.recode.net/2018/2/5/16974032/this-is-where-chart-
softbank-vision-fund-masayoshi-son-venture-capital)

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laobagua
If you hate someone, take their money and run, I guess?

