Tech: Venture capitalists are 'baffled' by SoftBank's massive $100 billion tech fund and the size of its investments
SoftBank has been pumping billions into tech companies around the world, including ARM and Nvidia.
SoftBank shocked VCs worldwide last October when it announced plans to raise a $100 billion (£75 billion) "SoftBank Vision Fund" — a tech fund larger than any other on the planet.
Mark Tluszcz, the CEO of Mangrove Capital Partners, who made $200 million (£140 million) from a $2 million (£1.4 million) early investment into Skype, told Business Insider: "Most investors are thinking this is insane. This is crazy."
So far, SoftBank has raised $93 billion (£70 billion) from an eclectic mix of investors — including Apple, Qualcomm, Larry Ellison (the billionaire founder of Oracle), and the Public Investment Fund of the Kingdom of Saudi Arabia — and it appears to be investing the money at a phenomenal pace.
The investment thesis behind the fund was explained by Masayoshi Son, chairman and CEO of SoftBank Group, when it was announced.
"With the establishment of the SoftBank Vision Fund, we will be able to step up investments in technology companies globally," said Son, who is Japan's richest man. "Over the next decade, the SoftBank Vision Fund will be the biggest investor in the technology sector. We will further accelerate the information revolution by contributing to its development."
SoftBank has recently been declaring huge, multimillion pound tech investments and acquisitions almost every day.
It paid £24 billion for UK chip designer ARM last July, then invested $502 million (£379 million) into London startup Improbable in May. Improbable creates virtual worlds that can run highly complex simulations. Elsewhere SoftBank reportedly took a $4 billion (£3 billion) stake in chip maker Nvidia the same month, and backed an indoor farming company called Plenty in a $200 million (£151 million) funding round in July.
Only two investments (Plenty and AI startup Brain Corp) have officially come out of the SoftBank Vision Fund but a SoftBank spokesperson said many others are expected to "draw on" the Vision Fund after they've passed certain internal approvals.
SoftBank's investments have taken many VCs by surprise
Tluszcz, who is based in Luxembourg and welcomes the fund himself as an early stage investor, said that some of the world's best known VC funds are concerned they'll be priced out of new startup funding rounds, adding that they won't have the same levels of capital to back the best startups over a sustained period of time. That essentially means they'll be left with a less valuable stake in the company when it exits.
"Now they're no longer the big boys on the block and they're going to have to adjust themselves," said Tluszcz. "It's going to drive up prices and they're moaning about it."
Two other London-based VCs, who spoke to Business Insider on the condition that we kept them anonymous, said they were "bewildered" and "baffled" by the SoftBank fund respectively. "I don't think it is a venture fund as much as a buyout fund for tech, but then they did Improbable," one said.
For fast-growing startups, SoftBank is offering them a new way to grow far faster than would have been previously possible. They can now jump from doing a Series A round to effectively raising a Series D or E round, Tluszcz said.
Deliveroo and Slack are rumoured to be SoftBank's next targets
There are a number of other large SoftBank investments in the pipeline, with reports suggesting food delivery service Deliveroo and enterprise messaging platform Slack are next.
Tom Hulme, a general partner at GV, formerly Google Ventures, added: "To their credit, they seem to be placing some very specific large bets and investing in public companies as well, which is very interesting."
"I think strategically ARM is a very interesting investment. We've tracked Improbable for a long time and think the idea of simulation-as-a-service is a really interesting investment. So it's going to be fun to watch it because the approach is so different to what the market is used to. I'm optimistic and excited to see how it plays out. I think net-net it will be a good thing for the ecosystem."
Matt Clifford, the CEO of company builder Entrepreneur First, also welcomed SoftBank's efforts. "I think it's positive and exciting to have investors with conviction in frontier technology and with very deep pockets," he said. "It's never been cheaper to start a company — but it's not got any less expensive to scale one. So ambitious startups do need access to large amounts of capital if they're to become independent tech giants rather than be bought by one.
"In that sense, I hope the Vision Fund's presence in the global tech ecosystem helps remove any artificial limits on how ambitious founders can be."
SoftBank declined to comment.