Softbank’s Masayoshi Son bets the Vision Fund — the biggest VC pool in history — on automation.
In July 11, 2016, Ian Thornton picked up the phone for what he thought was a routine catch-up after a monthlong sabbatical. He had missed a rough couple of weeks in the U.K., including the country’s shock decision in a June 23 referendum to leave the European Union, sending the pound tumbling to a three-decade low against the dollar as investors struggled to comprehend the result. Chris Kennedy, then chief finance officer at computer processor designer Arm Holdings, was about to deliver even less likely news. Arm had a takeover bid.
“Who would want to buy us? Given where we sit in the industry, we thought it would be hard for anyone to acquire Arm,” Thornton says. Arm makes money licensing designs for processors, the “brains” of a computer chip, including the kind that runs 95 percent of the world’s smartphones. Arm has been called “the most successful British tech company you’ve never heard of.” It’s growing fast, and reaping profits of about 40 percent.
The bid came from SoftBank Group, a Japanese telecommunications company best known for turning a $20 million stake in Alibaba into $60 billion when the company went public in 2014.
Masayoshi Son, SoftBank’s founder, had flown to Turkish seaside resort Marmaris a week before Thornton’s fateful call and had met with Arm chairman Stuart Chambers. Son offered an unsolicited £24.3 billion ($32.4 billion) in cash for the company, or 70 times Arm’s 2015 net income. He had pulled out all the stops for what would become Softbank’s biggest acquisition yet — selling off a chunk of Alibaba and other valuable assets to amass $20 billion in ready money. Those close to the Arm deal are still stunned by its velocity.
“The whole thing was very fast,” Thornton says. “Masa wanted the deal done quickly — I think he was worried about someone pinching us away from under his nose. He said he had wanted to own Arm for many years, and the opportunity came in.”
Masayoshi Son — Masa to those who know him — famously thinks in decades, not years. At 19 he sat down and wrote his life plan, which stipulated that by 60, his current age, he would begin looking for a successor. (He now says that he’s not ready to take the backseat.) His vision for SoftBank extends 300 years into the future, far beyond Son’s natural life, the company claims in a slideshow outlining the next three decades.
SoftBank and Arm deny that Brexit influenced the sale. If that’s true, something else compelled Son to strike fast.
Son has one vision, outlined in countless interviews: the singularity, a moment when robots with IQs above 10,000 will outnumber humans. This will happen in the next 30 years, he predicts. He is assembling multiple $100 billion investment vehicles to capitalize on this moment through massive tech investments in the companies at the vanguard of his vision. Son launched the first — the Vision Fund — a month after SoftBank’s acquisition of Arm.
At $97 billion, the current Vision Fund is the largest corporate venture capital fund in history.
SoftBank itself has contributed $25 billion. It’s not the fund’s largest investor, but Son’s company is the largest owner. Saudi Arabia’s $45 billion stake includes $17 billion in equity, against which it has borrowed $28 billion. The debt is in the form of preferred units, which received an annual coupon of 7 percent across the fund’s 12-year cycle, with other investment returns apportioned against only the equity. The money comes from the Saudi Arabia Public Investment Fund, which has its own 2030 “vision realization program” and targets returns of between 4 and 5 percent.
Other backers include Apple, Qualcomm, and Sharp, convinced by Son’s reputation as a resolute deal maker and by SoftBank’s returns. Son must deploy $20 billion, or a fifth of the fund, every year for the next five years to meet investors’ terms and their expectations in a market that many already consider overvalued. The Vision Fund’s early investments — cash injections of more than $100 million into a seemingly random range of companies, from co-working-cum-real-estate-company WeWork to Internet satellite company OneWEB to sports retailer Fanatics — have made some wonder if it’s dumb money. Son has already been branded “a one-man bubble maker.”
But there is a method to the Vision Fund’s billion-dollar rainmaking. And it began with Arm....MUCH MORE
