It is giving new opportunities to entrepreneurs and forcing Silicon Valley's best to stay relevant
HERMAN NARULA named his company Improbable for a business plan so outlandish and fraught with computing problems that only two outcomes are plausible. As the British entrepreneur tells it, the result will be outright failure or success unmatched. He wants to create virtual worlds as detailed, immersive and persistent as reality, where millions of people can live as their true selves, earn their main income and interact with artificially intelligent robots. If that happens, it will be partly because Mr Narula drew the attention of a similarly improbable, wildly ambitious technology fund. The Vision Fund has put close to $500m into Improbable, which had previously raised only $52m.
An outsize investment in an unconventional business is typical of a fund that itself is both vast and resistant to definition. It is the brainchild of Masayoshi Son, an unusually risk-loving Japanese telecoms and internet entrepreneur. It is too big to be considered a conventional venture-capital firm, which would typically manage much smaller sums. It eschews many of the practices of private-equity funds, such as shaking up management and applying plenty of debt. Yet this impressive-but-puzzling experiment is having an impact on everyone who invests in technology. At a recent gathering of financiers in New York, Bill Gurley of Benchmark, a venture-capital firm that has invested in numerous well-known tech firms, called the Vision Fund “the most powerful investor in our world”.
Even amid the hyperbole and fervour of tech Mr Son stands out. This is partly because of his belief in mind-boggling futuristic scenarios such as the “singularity”, when computer intelligence is meant to overtake the human kind. But it is also because Mr Son’s method is to do things rapidly and on a scale other investors would shy away from. Whether backing founders lavishly, so they can roll out new business models and technology as quickly as possible, or encouraging consolidation among the world’s giant ride-hailing companies, including Uber and Singapore’s Grab, he thinks bigger than most.
Silicon Valley insiders are sceptical, saying that Mr Son is force-feeding young firms with more capital than they deserve or need and that his fund will further inflate a bubble in technology valuations. His investors may well discover how hard it is to earn high returns on huge sums invested in relatively mature firms. But entrepreneurs, some of whom regard Mr Son as superhuman, are delighted. “If he came in and levitated one day I would not be surprised,” says Mike Cagney, co-founder of SoFi, an American financial-technology company in which Mr Son has invested.
Those doubting his grand visions have been proved wrong in the past. In 1981 he founded SoftBank to distribute personal-computer software in Tokyo with two part-time employees. On the first day the diminutive Mr Son stood on two apple cartons and announced to those befuddled workers that in five years the firm would have $75m in sales and be number one. They thought “this guy must be crazy”, Mr Son later told the Harvard Business Review, and quit the same day. But Mr Son’s drive and ambition saw SoftBank eventually distributing 80% of PC software in Japan.
Rising SonSoftBank subsequently grew into a global conglomerate with stakes in hundreds of web firms, including Yahoo. As tech valuations soared in 2000 Mr Son’s personal wealth even briefly overtook that of Bill Gates. The dotcom crash of 2001 wiped out 99% of SoftBank’s market value. But one investment—$20m sunk into Alibaba—is regarded as one of the best in history. The Chinese internet titan went public in 2014 in the world’s biggest IPO. SoftBank’s 28% stake in the firm is now worth $140bn.
Many old hands of the tech industry snootily dismiss his bets on Yahoo and Alibaba as flukes. Mr Son is bent on proving them wrong. He spent a decade focusing on SoftBank’s Japanese telecoms and internet-infrastructure businesses and on trying to turn around struggling Sprint, an American mobile-phone operator acquired in 2013 (on April 29th Mr Son beat a retreat, agreeing to merge it with T-Mobile to create an enterprise worth $146bn). Now Mr Son has returned to investing. Since reaping the riches of Alibaba’s IPO Mr Son has been using SoftBank’s capital for a series of large tech investments, including $2.5bn in Flipkart, an Indian e-commerce site which on May 9th Mr Son said he was selling to Walmart for $4bn (see article). He has also put money into Grab and SoFi. And in 2016 SoftBank bought Arm Holdings, a British chip firm, for £24.3bn ($31.9bn).
The appetite of Mr Son and his main lieutenant, Rajeev Misra, a well-connected former derivatives trader from Deutsche Bank, was far from sated. But Mr Son’s grand dreams were not matched by the depth of SoftBank’s pockets. Its acquisitions had left the firm weighed down by debt. So the two men beat a path to the Middle East. The timing was handy. Muhammad bin Salman, now Saudi Arabia’s crown prince, was preparing to launch a programme to wean the country off oil and diversify the economy. Mr Son’s sales pitch on how he could use the kingdom’s wealth to grab a stake in future technologies, rather than buying the usual Western trophy assets, saw him leave with a pledge of $45bn.
That vast sum, from Saudi Arabia’s Public Investment Fund, is the biggest chunk of the $100bn that the Vision Fund has now raised. It has also raised $28bn from SoftBank itself, $15bn from Mubadala, Abu Dhabi’s sovereign-wealth fund, $5bn from Apple and other corporate sources, and $7bn from other sources as yet unnamed (see chart 1).
Raising the stakesHaving amassed the wherewithal, Mr Son set about collecting stakes. After a year the Vision Fund boasts a family of 24 companies (see chart 2). SoftBank’s holdings in ride-sharing firms—Uber, Didi, Grab and Ola—will reportedly move into the fund within months. Other stakes are expected to move later, such as those in SoFi and OneWeb. All future investments of $100m or more that Mr Son makes will go into the Vision Fund, which plans to have invested in as many as 100 firms within five years....MUCH MORE