SoftBank
My intrepid boss Masayoshi Son has launched his gargantuan 100 billion USD SoftBank Vision Fund.
Deux ex machina – god from the machine – was finally here, and Masa Son’s ambition is to be its high priest.
Born to run
Dr. Shiv Gupta suggested that my background was a good fit for MBA in finance at Wharton. BA in Mathematics is nice, it allows you to work on Fermat’s last theorem, but it doesn’t pay the bills.
Michael Milken was a young quant who demonstrated that a diversified portfolio of bonds rated bellow investment grade represents great value because the higher yields systematically offset loses from higher default rates. He also created a 9 trillion USD capital market. Later he was indicted for racketeering and securities fraud.
Investment banking isn’t money for nothing. “Busy” means working sixteen hours a day on weekdays plus another sixteen on weekends.
Morgan Stanley was a fortunate landing place. At age thirty-three, after an exhilarating and exhausting journey, I earned the converted brass ring and became a managing director.
Masayoshi Son claimed to own 7-8 percent of all publicly listed internet properties in 1999.
“CEO impact”, aka “impressing powerful men” (it was mostly men) is a core skill for investment bankers. For me this meant listening more than talking, avoiding pitch books or taking notes, never selling. They came away impressed you let them impress you.
When Nikesh walked into a space, he owned it; you felt his intimidating presence. Nikesh get mi in a way few people did. Nikesh was the founding CEO of T-Motion, a mobile internet service provider. He later joined Google as chief business officer with an annual compensation of 51 USD million. He had military-style execution capabilities.
I saw Masayoshi Son for the first time on Nikesh’s weeding in 2014.
Nikesh would join Softbank as its president in one of the most lucrative compensation deals of all time – a 73 USD million annual pay package.
Masa was a visionary and an iconoclast – a hero. But heroes have flaws.
I took a pill in Ibiza
It began wit a pill. Pacha is the mecca for Ibiza clubbers.
Maya and I joined Nikesh and Ayesha in Ibiza after their wedding.
Conversations with Nikesh were like chess games, you had to think a few moves ahead before speaking. Nikesh offered me a job.
Investment bankers are like martlets – birds without feet, condemned to a life of continuous flight. They paycheck got bigger, many times bigger, but greed took over when poverty ended. I should have walked away, but I didn’t. Nobody does; nobody walks out of the money trap.
Doing seriously cool shit, presumably substantial and complex technology deals, as a principal at Softbank was intriguing.
I was neither a Valley founder nor a millennial raver and drugs don’t feature on my menu, but that pill reminded me how much I missed the absence of constriction and camouflage.
The airport test
The Ten Year Itch – my thesis was that every decade an eager new crop of investment managers in New York get excited about India for the same old reasons – the young population, an educated and growing consumer class, democracy, the infrastructure opportunity – and how this renewed enthusiasm coincides neatly with the global liquidity cycle and rising animal spirits in global financial markets.
Ron Fisher was a person I wanted to be around.
Mexican billionaire Carlos Slim was being forced to divest a piece of his overweight America Movil at the behest of the Mexican regulators. Softbank was a potential acquirer.
With Nikesh, if you shoved up unprepared, your fate was outright defenestration.
Softbank was also thinking about acquisition of DreamWorks Animation for 3.4 billion USD.
Masa described a Softbank model of buying US technology and media company and exploit investee company’s intellectual property in Asia as his “time machine management” strategy, the idea being to “foster the global inclusion of superior business models found through its venture capital operations in the US.
Nikesh was less enthused about telecom and more interested in content (DreamWorks and Legendary) that might be exploited in the digital world. At Google he had advocated acquiring Netflix in its early days.
Sergej Brin came up with the Airport test. He said that for Google to hire you, you needed to be interesting enough for your colleagues to enjoy spending a few hours with you in case you happened to be stranded at an airport.
Happiness for everyone
Investment bankers, like sharks, need continuous motion to stay alive, swimming in and out of client offices globally.
Softbank started as a software distributor to ride the PC revolution of the eighties. The company reinvented itself twice, surfing the even more potent internet disruption of the nineties and then again the smartphone wave.
Masa said: “ The internet business model for me was all about platforms with theoretical infinite reach at zero variable cost.
SoftBank’s stake in Yahoo! was worth over 30 billion USD at its peak in 2000. SoftBank eventually sold its stake at a fraction of the peak valuation.
Investment decision require the cold detachment of a Mr. Spock, but Masa evidently viewed Alibaba with a dangerous combination of affection and reverence.
On the strength of the Jobs handshake (that Apple would produce iPhone and that Masa would be exclusive distributor in Japan), Masa wagered 15.4 billion USD – almost four times the value of a diminished SoftBank – on Vodafone Japan. He used 90 percent leverage, including 4.6 billion USD of financing from Vodafone. 2 billion USD investment turned into 42 billion USD when company went public in 2019.
Strawberry fields forever
Masa categorized people as stupid, smart, or crazy, the last being the ultimate accolade reserved for himself and select others.
Hierarchy and protocol are paramount in Japanese business culture, and nowhere is this more evident than in the seating arrangements in meetings.
Masa is certainly a man of action, and not just dealmaking.
Sakamoto Ryoma was a rogue samurai, a ronin with no master. SoftBank itself was stamped with Ryoma.
Masa was saying that singularity is coming, with artificial general intelligence to be the driver of a new cognitive Industrial Revolution. Masa is a fervent AI accelerationist.
Masa’s parents ran a coffee shop in Tokyo when he was a kid. The business struggled to attract traffic, until Masa persuaded his father to offer free coffee. It worked.
Reid Hoffman calls growth-at-any-cost strategy “blitzscaling”. The goal is market dominance and the pricing power that comes with it: when you get there you crank up the profit engine. For Masa this meant an obsessive focus on 80 percent market share.
Facetime
“Value investors” like Warren Buffet are bargain hunters, while “growth investors” like Masa care less about price.
Masa missed on Facebook to Yuri Milner. He wanted to get part of ByteDance for any price. Milner also said that Google and Microsoft would capture majority of AI value created.
City of Djinns
Adam Neumann impressed Masa. He was drawn to him by his crazy factor.
The acceptance rate at IIT Mumbai hovers around 0.25 percent, making it twenty times tougher to get into than Harvard College or MIT.
Cash flow are dollars you can buy beer with according to Professor Knutson at Wharton would say.
When asked if he could spell “profit” Jeff Bezos once answered p-r-o-p-h-e-t.
Goldman Sachs approached SoftBank to invest in WeWork with 8 billion USD valuation. The valuation was not realistic, but Adam Neumann was the ultimate salesman.
Show me the money
SoftBank needed money. They bought Sprint with 19 billion USD debt.
Technology investment is more speculative; even a proven business is constantly threatened by disruption. Masa had an impressive track record investing ahead of technology megatrends, he frequently held on too long.
SoftBank got money from selling Supercell and stake in Alibaba.
My business dealings with China left me with a cynical mistrust of China’s unique brand of state capitalism.
This aggression will not stand, man
David Boises represented the federal government (successfully) in the historic antitrust case against Microsoft, and AI Gore (unsuccessfully) in the landmark Supreme Court Bush v. Gore case.
A letter was sand by his office to attack Nikesh.
Later it was revealed that behind was the investor in SoftBank forty-six-year-old Swiss national named Nicolas Giannakopulos.
Curveball
Masa embraced Nietzsche’s observation that “what thins are called in unspeakably more important than what they are.”
Arm delivered the Holy Grail of predictable growth and consistent profitability. Masa’s central thesis was that markets underestimated how transformative the IoT revolution would be. Nikesh liked the business, but for him, buying Arm was an expensive “bet the company” deal – a company he hoped to inherit in the immediate future.
Barack Obama says that “every man is trying to live up to his father’s expectations or make up for their father’s mistakes.
Nikesh was out, because Masa told him that he’s not ready to give up the CEO role anytime soon.
The crystal ball
Morgan Stanley’s start M & A banker in Europe. Sir Simon Robey was an insider to the old boy network of Oxbridge-educate civil servants who run Britain while the feckless politicians come and go. He was needed for Arm’s deal.
Simon Segars was CEO of Arm. Arm’s chairman was Stuart Chambers.
In military parlance our strategy was “shock and awe”; in M&A lexicon it was a “bear hug”.
Arm deal was closed two months after SoftBank approached Arm.
That’s far out, man
Calvin Cottar was a big game hunter, stalkers of Africa’s Big Five. Tedy Roosevelt and his son Kermit shot 512 animals in their trips in Africa.
Project Crystall Ball was an idea of mega Vision Fund and its investment case. A critical differentiating factor of the Vision Fund was its embedded leverage in the form of “preferred equity”. It represents the convergence of two worlds that were hitherto a continent apart – Wall Street-structured finance and Bay Area technology.
Muhamed bin Salman’s passion was video games, his favorite the history-themed Age of Empire. In 2016 he introduced Saudi Vision 2030. He had a dinner with Marc Andreessen, Peter Thiel, Michael Moritz, John Doerr. He needed a bridge between Saudi and Silicon Valley. Nobody was interested. But he came to Tokio in 2016 and met Masa. He commit to 45 billion USD for Masa’s Vision Fund.
Yasir Al-Rumayyan headed the Saudi Public Investment Fund (PIF).
Masa’s favorite presentation slide is a goose and five golden eggs. SoftBank = Producer of Golden Eggs. The goose labeled AI Revolution.
Vision Fund closed in 2017 with a size of just under 100 billion USD.
If you can get a private audience with the Crown Prince of Saudi Arabia, the prime minister of India, and the president elect of the United States, you know you’re a player. Masa met with MBS on December 1, 2016. Alok meet with Narendra Modi on December 3. After Delhi Masa went to see President-elect Donald Trump. Ivanka was at the meeting.
First blood
On July 14, 2016 the letter from Mintz & Gold that attacked Alok was received by SoftBank.
A friend (the CEO of a European bank) introduced me to an Israeli intelligence officer named Avram Ben Gurion. Signal and Telegram would become mainstream.
K2 Intelligence set up by Jules Kroll, had been engaged to investigate me.
The Vision Fund was the sacred cow, I was expendable. It wasn’t personal, except it was.
Let me roll it
Nvidia promised to power the AI arms already in 2017. Jensen preemptively killed all prospects of a merger with Arm. Leadership in AI was strategic to the US.
Adam Neumann was reconnected to Masa through Mark Schwartz, who served on SoftBank’s board. SoftBank invested 4.4 billion USD in WeWork.
OYO was like Uber but for budget hotel rooms. OYO is the quintessential case study in how too much capital can distort a business.
In 2016 the largest venture funds in the Valley rarely exceeded 1 billion USD. Vision Fund was an unimaginable 100 billion USD.
From 2013 to 2023 the market value of all unicorns would skyrocket from 100 billion to 5 trillion USD.
Game of phones
Financial markets have influencers too.
The ultimate influencer in the world of media deals – John Malone.
SoftBank games of phones in US began in 2014.
The cable giant Charter Communication and wireless carrier Sprint was bought by SoftBank. Sprint was bought for 21.5 billion USD. But the merger with T-mobile was blocked by the Democrats.
Sprint was draining money. Masa replaced incumbent CEO Dan Hesse with Marcelo Claure. Rajeev Mista engineered a financial lifeline, raising capital by securitizing Sprint’s spectrum assets and handset leases.
The cable giant Charter Communication deal was important for SoftBank and John Malone was a key player. He commit to Masa, but something was wrong. Charter’s CEO was Tom Rutledge.
But Germans were watching. Tim Hodges was CEO of Deutsche Telekom. John Legere was CEO of T-Mobile. The merger was done. The new company was led by John Legere and HQ in Seattle.
Hunters and cooks
It is an old investment maxim that when taxi drivers start talking about a stock, it is time to sell.
I hate talking to strangers, and when I do, as Maya points out, my mouth has an overly intimate relationship with my feet.
Charles Mackay’s wrote a nineteenth-century treatise Extraordinary Popular Delusions and the Madness of Crowds.
In 2008 I voiced my concerns to Masa. The pace of dealmaking, the leverage, the escalating risk. We should invest in Google and Microsoft. Every time there is a breakthrough in AI technology, they will buy a company, like DeepMind.
In every family there are hunters and cooks Masa said. He liked hunters more. If Masa’s mission is to maximize happiness, aren’t cooks more valuable? Do hunters make people happy. The way Masa said it, it hurt. As if I’d been demoted from a glamorous Kshatriya (warrior) status to a journeyman Vaishya (craftsman).
What I forgot to tell was that the times of cooks and hunters is gone, the clean-up crew time was here.
The butterfly effect
Mathematics can be an infinite jest. George Boole’s algebra reduced all mental activity to simply binary form, while John von Neumann’s game theory mathematized human motivation.
The longevity obsession is not just a Valley phenomenon.
111. Cricketers call it “a Nelson” and consider it a terribly unlucky number. It has to do with Lord Nelson, who apparently lost one arm at Tenerife, one eye in Corsica, and one leg before he eventually died at the Battle of Trafalgar in 1805.
111 day after my father died, another message, this time it was my mother.
How much land does a man need?
Wallis Simpson said, you can never be too rich or too thin.
Tolstoj’s How Much Land Does a Man Need? Begins with two sisters debating the quality of their respective lives. Husband of ones said that he only regret not having more land. In one deal with a tribe owning a land they told him that he can have as much land as he can circumnavigate in a day; sunrise to sunset, for a flat payment of 1.000 rubles. He started at sunrise but he died during the day. They dig up the grave for him. Tolstoj’s answer on how much land does a man need – six feet long.
The Dude Abides
“Schmuck insurance” is a smart option when you sell an asset. It is an option to buy back an asset for pre-agreed price. So that you are no a schmuck if the assets starts to gain value.
The caricature of smart money and dumb money is classist, reductionist and false. In bull market all money is smart money, but every decade or so we are reminded that speculative markets are mostly a case of dumb and dumber.
Vision fund declared 32 billion USD loss for 2023.
In 2016 MBS went to Valley, no Valley came to Mohamed. His PIF no longer needed hand holding from SoftBank.
WeWork filed for bankruptcy in November 2023.
SoftBank went on offense after selling Alibaba stake for 35 billion USD. Arm stock was exploding. T-Mobile was on a good track.
Nikesh Arora was now CEO of Palo Alto Networks and their performance was exceptional.
In my world the only reason people examine their lives is to figure out ways to make more money.
