In his career finale, a pioneering investor aims to lead a massive shift in communications.
Last week, Japanese investment giant SoftBank announced that it had closed $93 billion in committed capital for its massive Vision Fund, putting it within striking distance of the $100 billion target it announced last year. The Vision Fund dwarfs even the world’s biggest private equity vehicles, including the $22.5B mega fund that Apollo Global Management announced last month set to have been the largest in recent history. The Vision Fund would exceed the size of the five biggest private equity funds combined, according to investment research firm Pitchbook.
ARM acquisition provides a launchpad into IoT
Since the Internet boom of the late ‘90s, Softbank has set the pace for tech investing, betting huge sums to chase the rapid growth of the Internet, then retail distribution via online portals. It has made tens of billions in returns from investments in companies from Alibaba, to Yahoo and Supercell Oy. The first closing of the Vision Fund comes just three months after Softbank’s founder, Chairman and CEO Masayoshi Son made the biggest bet of his career with the $32 billion acquisition of chipmaker ARM Holdings Plc. ARM provides technology for 95% of all smartphones and seems poised to play a central role in the emerging “Internet of Things” (IoT) market that will network devices, vehicles, and buildings via remote sensors and processors. “ARM will be the center of the Internet of Things, in which everything will be connected,” he told reporters. “IoT is going to be the biggest paradigm shift in human history (and) we have always invested at the beginning of every paradigm shift.”
Ambitious vision set to shake up the investment community
Softbank’s Vision Fund is rumbling the investment community because of its size, but also because of its ambitions. It is the cornerstone for Softbank’s founder, Chairman and CEO Masayoshi Son’s final mission for Softbank to bring Japan’s third largest company to a new level of global leadership. Last year, Son decided to postpone his retirement to “work on a few more crazy ideas.” “I feel my work is not done,” he stated. Mr. Son said. “This will require me to be C.E.O. for at least another five to 10 years.” According to Bloomberg, Son has laid out a 300-year plan to make the company the most valuable in the world.
Historically, SoftBank invests in a range of businesses, from established players to tiny start-ups. Recent examples include a $130 million in the biotech startup Zymergen, $5 billion to Chinese Uber competitor Didi Chuxing as well as big bets on co-working space provider WeWork and India’s Paytm, a mobile payments company.
Venture capital vehicles, known for making the types of tech investments the Vision Fund is targeting, are typically even smaller than the giant private equity funds. For example, Technology Crossover Ventures’ 2007 fund VII was one of the biggest in history at only $3 billion. Only a small group of the hundreds of venture funds have established vehicles that total more than $1 billion.
Which markets will bloom with Vision Fund investment?
Industry observers wonder whether a behemoth investor of this size with considerable technology synergies will hit the ecosystem of venture investment like an asteroid landing on a desert island. According to analyst Kyle Stanford, the specter of price inflation for early-stage investments is already haunting the investment meetings at venture firms. “The fear is all rooted in the 2014, 2015 investment environment, where there were tourist investors and valuations were getting out of control, and when valuations get too high it limits exit opportunities,” Stanford explains. “When you see a fund of $100 billion coming in already making big headliner deals, I think that fear is going to come back.”
Those headliner deals depend on a healthy crop of well-financed growth stage deals, which have been on the decline even as overall investment activity has picked up, with first financing activity falling for seven consecutive quarters.
First financing activity has fallen for seventh consecutive quarters
Over the short term, competition for top tier deals will heat up startup valuations, but the Vision Fund is also bound to have a profound impact on the kinds of technologies that get to market and their pace of development. $100 B in ambitious capital will drive investors to expand their investment activity to new technologies and markets.
Riding, and driving the food tech wave
Telecom giants like Softbank are diversifying beyond their core industries through acquisitions in areas that lead to synergies. BT launched a sports TV channels venture and Norway’s Telenor opened an e-bank. From its base in Japan and with domain expertise in telecommunications and hardware, Softbank will be looking for technologies that are riding dramatic market trends.
One candidate is precision ag. With its ambition, its vision and it’s unique perspective as a Japanese company, Softbank seems set to play in the next chapter of the telecommunications revolution– beyond the internet, beyond urban networks to address the big challenge of feeding a population of 9 billion.
By 2050, 14 of the world’s 20 biggest metropolises will be in Asia and Africa, including Jakarta, Manila, Karachi, Kinshasa and Lagos as well as Tokyo, Shanghai. and Mumbai, according to a projection by Demographia. It takes about 1 acre to feed the average U.S. consumer. China only has about 0.2 acres of arable land per citizen, and an estimated 20% of that land is contaminated with toxic pollution. As a result, Chinese have been investing aggressively outside of China to produce food for their home market. High profile purchases include Australia’s biggest dairy operation and US-based Smithfield Foods.
Precision agriculture is a “must win” market for IoT leadership
As the world’s population grows, outright purchase of existing food production facilities will not suffice. Technology will be essential to feed burgeoning populations. Precision agriculture will be more than enabling technology, it will be essential for survival; to feed an increasingly crowded planet. This will be a “must win” flagship market for major technology and communications companies, from Intel and Softbank’s ARM to communications companies like Softbank’s Sprint, Verizon, BT and Telstra.