The Vision Fund II has been announced and at $108 billion, the second instalment of the world’s biggest tech investor will be even bigger than the first. It will also hope to prove even more influential in shaping the future economy and even our way of life through its funding of the latest technology in the world.
How will the Vision Fund II differ from its predecessor and how could its launch shape the future of tech?
The Original Vision Fund – Successes and Criticisms
Three years ago SoftBank CEO Masayoshi Son announced the ‘Vision Fund’. The $97 billion fund invested, and invested aggressively, in start-up and growth technology companies. It was the biggest tech investor in the world and made Son one of the most influential individuals in the digital, and wider, global economy.
The Vision Fund has now invested every single penny of that huge war chest in increments of a minimum of $100 million. It holds stakes in 80 of the world’s leading and most promising technology companies across wide range of industries from e-commerce and semi-conductors to transport, health and virtual reality.
Just some of the companies in the Vision Fund portfolio are:
- Slack, the professional messaging service that recently IPO-ed.
- OakNorth, the UK-based fintech using machine learning to inform property and business lending decisions.
- Improbable, another British company creating a VR engine.
- Nvidia, the cutting edge chipmaker.
- WeWork, the New York-founded upmarket co-working giant preparing for a huge IPO.
- Uber, the international market leader in the ride-hailing app market with big ambitions in driverless technology and the future driverless economy.
The fund’s two biggest investors are Saudi Arabia’s Public Investment Fund, or PIF, and Abu Dhabi’s Mubadala Investment Co. Between them, the two Middle East sovereign investment funds contributed almost two-thirds of the Vision Fund’s capital. Other major investors include SoftBank itself, Foxconn, the Taiwanese electronics contract manufacturing multinational and Apple.
The Vision Fund has not escaped criticism and has been accused of inflating the valuations of tech companies. The Wall Street Journal has reported rumoured privately made complaints from both PIF and Mubadala that the fund has regularly overpaid for its holdings. That perception, if true, presumably isn’t helped by the fact that many of the investments held in the Vision Fund portfolio were originally made direct by SoftBank before being moved into the fund – often at a premium with the mark-up banked by SoftBank.
Son is well-known for obliging the companies the Vision Fund buys into take several times the value of investment they are originally asking for. His logic is said to be that them having a bulging war chest means they can afford the absolute best in talent as well as having the means to take or create market share and scale quickly. The counter position is that this breeds a culture of waste and inefficiency in start-ups. Son is also said to regularly call the shots despite the fund’s board of executives theoretically taking investment decisions – which rumour has it are regularly overturned by the chairman.
Ultimately, it is far too early to tell if the original Vision Fund’s investment strategy will have proven profitable or not. Son lost $70 billion during the ‘dotcom’ crash. Before the online business bubble burst, Son was the richest man in the world. When it did go ‘pop’ his investments lost 75% of their value in 2 months and had lost 93% by the end of 2000. It’s still the biggest financial loss in history sustained by a single individual.
But he survived, just, and in 2006 managed to acquire Vodafone Japan. That deal turned SoftBank around and the company has been on a stellar rise since. Masayoshi Son is obviously an extraordinarily talented entrepreneur. He has made billions twice. But the worry remains that his first, almost fatal downfall, was the result of overly aggressively investing in technology start-ups and growth companies. Did the bursting of the dotcom bubble teach Son the lessons that led to his phoenix rising again – this time wiser and more sustainably? Or are the same mistakes being repeated?
Vision Fund 2 – Who Is Investing And Who Isn’t?
Despite the as yet unclear success of the original Vision Fund and rumours that relations between Son, SoftBank and many of its biggest investors are strained, the second instalment doesn’t appear short of backers. SoftBank is itself committing $38 billion of the $108 billion of investment capital Vision Fund 2 has targeted. The other investors listed in the memorandum officially announcing of Vision Fund 2 are:
SBG – Apple – Foxconn Technology Group – Microsoft Corporation – Mizuho Bank, Ltd. – Sumitomo Mitsui Banking Corporation – MUFG Bank, Ltd. – The Dai-ichi Life Insurance Company Limited – Sumitomo Mitsui Trust Bank – SMBC Nikko Securities Inc. – Daiwa Securities Group Inc. – National Investment Corporation of National Bank of Kazakhstan – Standard Chartered Bank – “major participants from Taiwan”.
It’s worth noting that all of the investors listed have signed only a “non-binding memorandum of understanding” so are still able to back out. PIF and Mubadala Investment Co., by far the two biggest investors in the original Vision Fund are also notable by their absence. However, other investors in the original fund such as Apple and Foxconn do appear again. Capital from the Middle East looks to have been replaced by big tech, with Microsoft also joining the fray alongside Apple, and financial institutions. Japan, SoftBank’s home market, has stepped up to the plate.
Will Vision Fund 2 Have A Different Investment Strategy?
It’s hard to tell at this stage if Vision Fund 2’s investment strategy and approach will differ meaningfully from that of its older brother. Its stated ambition is to “accelerate the AI revolution through investment in market-leading, tech-enabled growth companies”. That presumably means there will be a clear AI-focus to investments but it would be hard to find a company in the original fund’s portfolio that doesn’t involve the use of AI on some level. So we will have to wait and see how that mission statement is interpreted and it has presumably been left purposefully broad.
It is expected that Vision Fund 2 will also see a further move towards investors holding more preferred debt than equity. In the original fund only SoftBank’s holding was pure equity and other investors mainly held a mix of equity and debt. The second instalment is expected to go further in the debt direction and some investors could hold only debt with no equity at all.
Who Will The Vision Fund 2 Invest In?
Possibly the biggest unanswered question is which companies Vision Fund 2 will invest in. The size of the deals the first fund pursued, all in the hundreds of millions of dollars and up to several billion dollars, limits the international pool of suitable targets. Many of the most obvious investments have already been made. Of course, new tech companies come onto the radar all the time but as one anonymous private equity investment professional is quoted in the Financial Times as commenting:
“They’re starting to run out of runway. The scale they’re trying to invest in, billions of dollars per unicorn (a start-up valued at $1bn) — there’s not many of those deals globally. They’ve already had big exposure to a handful of them, and so a lot of it is just going to have to continue to fund their own deals.”
Does that mean Vision Fund 2 will invest a big part of its capital in new rounds of funding for companies backed by the original Vision Fund, doubling down on its risk profile?
We’ll have to wait and see. There are likely to be some such deals. However the Vision Fund 2 pans out, it will be interesting to observe. Son’s approach does certainly appear to now be a zero sum game. Either the Vision Funds will make him the richest man in the world again, or at least one of them. Or they will bring his empire crashing down once more, mirroring his dotcom demise. But in either case, there is genuine hope the huge flow of tech funding flowing out from Son and his Vision Funds will leave a genuine legacy in the accelerated development of the latest technology in the world.