Tuesday, March 20, 2018

Cooley on the State of Fourth Quarter Venture Capital: SoftBank Advisors (Vision Fund)

Our standard boilerplate on Cooley:
Cooley is one of the big dogs of the VC legal eagle biz. Something like a third of the unicorns on the WSJ's Billion Dollar Startup Club list have used Cooley for one purpose or another.
Additionally, 20 or 21 of the companies on the "Technology Review's 50 Smartest Companies 2017" list have been represented or counseled by the firm. As I said, one of the biggies.
And From CooleyGo:

Q4 2017 Quarterly VC Update: Michael Ronen on the State of Venture Capital Investing
In conjunction with our Q4 Venture Financing Report, I sat down with Michael Ronen from SoftBank Investment Advisers to get his take on the state of venture capital investing.

A few highlights from Michael:

On market fluctuations: Investing is a cyclical business, but we continue to feel good about our outlook because we generally take a long-term view, backing seasoned management teams and differentiated technologies with significant capital to weather transitory fluctuations.

On SoftBank’s position: The thrust of where we play the best, and where we are the best partner, is where we are going to become a patient, strategic shareholder and partner to management teams and earlier investors that are willing to take a long-term view with us.

On M&A: With tax reform and the repatriation of cash, M&A should continue to be robust. That’s also an opportunity for us as we look for strategic partners for our portfolio companies.

On cautious optimism for 2018: It doesn’t mean that we’re not cautious. We are highly selective in our investments, but, at this point, we are cautiously optimistic about 2018.

Michael, thank you for your time with today’s interview. I’ve been looking forward to it for quite some time.

I would love to start with your thoughts about the market for private financings, how it’s evolved over the last year and whether it’s consistent with the data that you’re seeing which basically shows, at least over the last three quarters, continued strengths, company-favorable terms and high valuations.

Firstly, thank you – I appreciate the opportunity to discuss these results with you and have lots of respect for what Cooley is doing in the market.
The short answer to your question is yes, we’re in a good market overall. Your data reflects the fact that we’re on the back of several years of strong public markets, low interest rates, generally favorable investor sentiment and, despite political macro risks that come and go, the tech investing landscape continues to be favorable. For the best companies out there that are in unique positions in the market, it is their financing to define. They call the terms, and they are in great shape to do that and for the right reasons – because they’ve put themselves in a position to be a leader.

It has been fascinating to me over the last several years to see how many new industries not classically thought of as tech industries, but with a sort of tech layer to them, have been insulated from larger global macroeconomics. I’d be foolish to think that this trend will last forever, but it’s pretty resilient overall, and it sounds like that’s what you’re saying.

It’s resilient, but you’re right that it won’t last forever. We will go through cycles. They’re part of investing life; they challenge investors and provide opportunities as well. Technology – as we obviously are a tech-focused fund – while affected in downturns, is also more resilient as long as you’re investing behind the right macro trends, and with the right management teams and companies that are in the place they should be. Generally, while cycles can always introduce unpleasant volatility, tech has less sensitivity to those types of macro risks – it has an enduring value.

Because of the size of your fund and the access you have to the most special outlier companies in various industries, is it safe to say there’s some insulation from all of that fluctuation? In terms of your ability to get deals done, to get access to great companies and to deploy capital – or do you see there’s risk that that changes either with significant sustained macroeconomic trends, or what could be perceived to be some amount of encroachment and competition from others?

We’re clearly a large fund, but we’re also part of a large global group. We are an affiliate of one of the largest technology groups out there and one that has been investing for 25-30 years. While this structure is new, SoftBank has been active in technology markets for a while, and Masa Son has accumulated an incredible track record of investing over the years. I think the combination of affiliation with our global technology group, plus our unique US/EMEA/Asia/Japan footprint combined with the size of our capital base, does differentiate our position. I don’t think it puts us in a place where we’re not going to be affected by macro trends. However, we’re in a place where the effects are somewhat different and more nuanced than if we were a pure early stage investing group.
Also, by virtue of the fact that we are a late-stage fund, the companies we invest in have reached a certain critical mass, either in innovation or scale or both, so the risk-return profile of our fund is different....MUCH MORE