How SoftBank swallowed the world

Under the leadership of the charismatic leader Masayoshi Son, the Vision Fund of the Japanese conglomerate SoftBank is taking over the world of technology by acquiring one company after another. This story is about what happens if you destroy the destroyers.

In 2010, Masayoshi Son, director of SoftBank Group, revealed his 300-year plan for future development. The $ 100 billion investment division of Vision Fund is the largest technical fund in history.



On the morning of July 20, 2017 at the Prince Park Tower luxury hotel in Tokyo, Masayoshi Son appeared on stage in a cluttered conference room. Its small silhouette was illuminated by bright white light. Sleep, director of the Japanese conglomerate SoftBank Group , covering the Internet, energy and finance, was dressed modestly, as usual, in a gray suit and striped shirt. He smiled and introduced himself in Japanese.



Sleep is known for its bizarre analogies and long speeches. In 2010, his talk about the “300-Year Plan for the Future” opened with reflections on the nature of sadness. Dream rhetorically asked: “What is the saddest thing in life? And what gives you the highest happiness? ”In 2016, he equated the Internet of Things (IoT) with the Cambrian explosion , comparing the evolutionary benefits gained by the appearance of the eyes of the first species with a combination of sensors and AI to create IoT.



Addressing hundreds of technologists and entrepreneurs, he likened SoftBank to the gentry of the industrial revolution, a privileged class who invested in technology and science for the common good. Two months earlier, SoftBank opened the $ 100 billion investment unit of the Vision Fund, the largest technical fund in history. In the Son metaphor, the Vision Fund was a gentry of the information revolution. “I don't feel like sleeping,” he said. - I do not want to waste time. These are very interesting times. ”



Many of the directors attending the meeting received funding for their firms from the fund. Without exception, they met with Son in person, either at his office in Shiodome, Tokyo, or at his estate in Woodside, California, worth $ 117.5 million. Most describe the legendary investor, nicknamed Masa, as a quietly speaking person of modest manners, having prophetic views on the future: and his reputation is supported by his achievements.



In the 1970s, Dream emigrated to America with the goal of training. At that time, he had a weak command of English, and made his first million on the import of Japanese arcade games such as Space Invaders. It was Son in 1996 who offered his friend-entrepreneur Jerry Young, who was then the startup director with a difficult financial situation “Yahoo!”, $ 100 million in investments. His forebodings came true. By 2000, Yahoo! became the dominant search engine, right up to the fall of Internet companies .



That year, Song met a young Chinese teacher who founded the Alibaba online store. He persuaded Jack Ma to accept a $ 20 million investment, promising to turn his company into the next Yahoo! .. Today, when Son invests in business, he sometimes tells its founders that they can become as big as Alibaba, one of the largest companies in the world. “In 2000, we already knew that China would become a major power, so it decided to invest,” says Eugene Izhikevich, head of the Brain AI stratap. “After the dotcom bubble collapsed, he invested in China. Then there was a dirt road between Hong Kong and Shenzhen. He has the gift of seeing things before they become real. What is obvious to him, after ten years becomes apparent to everyone else. "



At a meeting in Tokyo, Son introduced directors on stage. First, he invited Mark Rybert, the founder of the Boston Dynamics robotics company, a man who wants to change the world by creating robots whose biomechanical capabilities are superior to human ones. (SoftBank bought the company from Alphabet for an unnamed amount). Rybert brought with him the four-legged Spot Mini robot, which began to demonstrate the capabilities of its motor skills. “Masa, I think you'll have to step back, you're on his road,” Rybert warned Sona. “We have not yet taught him to recognize people.” Rybert finished with the statement that “robots will become a phenomenon that will eclipse the Internet” and thanked SoftBank for its help. The dream also thanked him and said: “We will change the world together. We will invest large amounts of AI in robots. ”





Masayoshi Song addresses entrepreneurs in 2017



Then came Greg Wyler, the founder of OneWeb, stating that amid all the talk about a hyper-connected future, 54% of the world's people have no access to the Internet. He spoke about the details of his plan to launch 900 non-geostationary satellites, which could guarantee Internet access to even the most remote corners of the planet by 2027. Having finished his speech, Wyler thanked SoftBank for their support. “We will change the world, we will connect everyone to the Internet,” answered Son, seeing him off the stage.



Artificial intelligence - and its ubiquitous data, high-speed communications and autonomous robots - ran through the speeches of all the speakers that day. Helmi Eltuhi, Director of Guardant Health, wants to beat cancer with data; Matt Barnard, founder of the Plenty platform for growing plants under a roof, used AI to optimize the plant's environment; Bill Juan, founder of Cloud Minds startup, wanted to create the world's first cloud-based robot. “Suddenly, we can help the blind navigate with sensors,” he said. “We can replace guide dogs!”



Before the meeting ended, Dream again went on stage and indulged in memories: “When I was 17, I first saw a photograph of the microprocessor, and cried. I was overwhelmed with feelings. ” He then introduced Simon Cigars, the head of the chip design company Arm Holdings , a British company. “Our first processors were the size of a button on a shirt,” Cigars began. “Now we can squeeze thousands of times more processing power from a chip the size of a pin head.” Arm microprocessors were used in surgical robots, robomobiles and smart cameras, but the future AI cannot be built if all this data has to be sent to the cloud for processing and then downloaded back - this option will consume too much energy and work slowly due to delays. “If every owner of an Android phone recognizes speech three minutes a day, Google will have to double the number of data centers,” said Cigars. The next generation of microprocessors will have to include AI and process the data on their own. “And we cannot do it alone,” he told the audience. “We need to work together with other companies to implement these technologies.”



In the end, Son shook hands with Cigars. He said that Arm is indispensable not only for SoftBank, but for all of humanity. “And now they are also a member of our family,” continued the Dream, turning to the audience. “If we can join hands, we can become the new gentry of this generation, making the future a more pleasant place to live.” He bowed and left.





Helmi Eltuhi, Director of Guardant Health



Sleep was obsessed with trying to make SoftBank the largest company in the world since its founding in 1981 as a distributor of PC software (SoftBank is the Bank of Software) - when he, a 24-year-old entrepreneur, stood on an empty box in front of his two employees and promised them that someday they would become the greatest company in the world. A few days later, these employees quit, but Dream, who is 61 years old, tirelessly pursued his goals, his “300-year-old vision”: a technological revolution that will ultimately lead to a singularity, to a point in history when AI surpasses humans in intelligence and will improve absolutely all industries of the global economy.



In this version of the future, SoftBank will not be the next Google, the next Apple or Microsoft - Sleep does not believe that one brand or one business model can achieve a singularity. This will be able to do what Dream calls the “Leadership Cluster” strategy: an ecosystem of AI companies led by SoftBank, deployed in all industries, from healthcare to transport, from transporting people to robots; this diversity matches Vision Fund's investment portfolio.



“We want to form a coalition of like-minded entrepreneurs,” said Dream to those attending the 2017 conference. “It is impossible to make a revolution alone.” And at the center of this ecosystem will be a company that develops small low-power processors that now stand in 95% of smartphones, not to mention smart speakers, health tracking devices, drones and televisions: Arm Holdings.



Son met Cigars in 2006 when he met then Arm Chief Warren East, and Cigars was one of the company's first employees. At that time, Arm already held a dominant position in the nascent mobile market. This in itself impressed Sona. He knew that mobile phones would soon surpass PCs, and the center of gravity of the Internet would shift from desktop computers to smartphones. Dream imagined that the architecture of high power and low power consumption of Arm microchips would become the center of the future digital economy.



As part of this idea, SoftBank acquired Vodafone Japan, a problematic mobile operator with communication problems and unpopular phones, a few weeks before meeting with Arm executives. SoftBank's directors were skeptical of the acquisition, but Sleep was adamant. In addition, he had a strategic advantage. Before buying, Son traveled to California and met with Steve Jobs. He brought with him a hand-drawn smartphone project and showed it to the head of Apple. (“It looked like a toad with a sticking out battery,” Son said in an interview with The Nikkei in 2016). Jobs really didn’t like the sketch, but he told Son that his intuition was correct. Jobs was then developing the first prototypes of the iPhone. Son left the meeting with the promise that if the deal with Vodafone passes, she will become the exclusive distributor of the iPhone in Japan.



Cigars and Son kept in touch, met a couple more times in 2006, and then back in 2014 and 2015. By the time Cigars replaced Ista as CEO in 2013, Arm - as Son had predicted - had consolidated its share in the chip industry and sold licenses to Apple, Samsung, Nvidia, and Qualcomm. As Son wanted, Vodafone Japan (now SoftBank Mobile) has become one of Japan's leading mobile companies, thanks to an exclusive deal with Apple.



In June 2016, Cigars met with Son at dinner at the latter's estate in California. Cigars later described this as the most important interview in his life. He just did not realize it then. At the meeting, Cigars shared the dilemma he encountered in Arm - but also noted that it also presents several interesting opportunities. The smartphone market was saturated, profit growth slowed, and Arm needed to significantly lower the percentage of profit in order to make long-term investments in areas such as AI, sensors, 5G and robomobiles. “We had to have unpleasant conversations with shareholders,” says Cigars. - I remember how I was asked about the drop in the percentage of profit, and how I explained that we invest in long-term projects. I still remember the expression of shock on the face of one of them. ”



A few days after the meeting, Son called Sigars: "I need to speak with your chairman as soon as possible." “Sorry, but this is not possible,” Cigars answered him. At that time, Arm Chairperson Stuart Chambers was relaxing on his yacht in the Mediterranean. But Sleep insisted: “No, no, no. You need to arrange this. I will provide you with a flight. Go to the nearest airport, I will arrange a flight for you, I will cure myself and we will meet. ”



They met at The Pineapple's seafood restaurant in Marmaris, Turkey. The dream reserved all the tables in it - and when Cigars and Chambers arrived, there were only waiters inside. When Son arrived, he sat down and told the British directors that he wanted to buy Arm and made them several promises: the company would remain an independent division of Softbank; he will not interfere with daily management; the company will be allowed to invest all its profits in research and development.



“I tried to behave as calmly as possible,” recalls Cigars. “We listened to him, and did everything we needed, that is, we did not agree to anything at once, and spoke as little as possible.”



Cigars and Chambers returned to Cambridge and submitted the proposal to the board of directors. A week later, they agreed in price; all designs were done in two weeks; the whole process took ten weeks. “Buying a company from the top 100 FTSEs in such a short time is awesome,” said Ian Thornton, vice president of investor relations at Arm. Rene Haas, president of Arm's intellectual property group, agrees with him: “Such processes can take years, but it happened insanely fast. Everything was under the auspices of 'give, let, let, move, push the deal.' Everything happened literally at the speed of light. I do not think that the laws of physics would allow a deal to be made faster, as well as the laws of the state, which needed to be obeyed. Everything went as fast as possible. ”



One Sunday, Arm Executive Committee members, uninitiated in negotiations, received text messages from Cigars about an urgent meeting. “I redirected the text to another member of the committee who was also expected at the meeting,” says Haas. - Everyone was confused. 'What, Simon is quitting? We had no idea. ” In the evening, the directors met in the conference room. And along with beer and chips, Cigars gave us a revelation. “Cards on the table,” he said. “Tomorrow it will be officially announced that SoftBank bought Arm.”



On Monday, July 18, 2016, Dream began the day with an early meeting with the Chancellor of the Exchequer of Great Britain, who was then George Osborne. Against the backdrop of the Brexit referendum a month before, the government was very wary of the purchase by a foreign firm of the country's most valuable technology company. Sleep signed additional agreements - several official obligations to the British government, according to which SoftBank will double the number of employees over the next five years and leave its headquarters in Cambridge.



A purchase announcement was made that morning: Arm was bought by SoftBank at a price of £ 17 per share, which totaled £ 24 billion. Herman Hauser, who participated in the early development of Arm and is considered one of Britain’s most influential entrepreneurs, said BBC that for the British technology industry it was a “sad day”.



In the afternoon, Dream went to Cambridge to meet with members of the Arm Executive Committee. “He glowed like a boy who got a new toy,” recalls Haas. - He said: 'This is the most joyful day in my life. I have been following this company for 30 years. And I'm impressed with her accomplishments. ”



A month later, Arm's team of executives went to San Carlos, California, to meet with Son and their SoftBank International colleagues. The British began the meeting with a presentation on profit plans and forecasts for the next four quarters. “He was completely uninterested,” says Haas. “He played on the iPad.” However, when they started talking about the vision of the future of the company, Dream was enthusiastic and shared his 300-year-old vision. By 2035, a trillion devices will be connected to the Internet, he said - it will be a huge Internet of things, where there will be robot cars, smart robots and sensors with AI, and Arm will be behind all of them. “He literally showed us charts and figures on profits from 2035,” says Haas. - I remember how I thought then: Is this a show? But now I understand that he just looks very far. And you start to think that if this can really be achieved, it will be madness. ”





Gene Liu, President of DiDi



The acquisition of Arm was the largest technology deal in Europe. She also noted the moment when many people in Britain, including entrepreneurs and technology experts, first heard about SoftBank. The fact that this little-known Japanese telecommunications company turned out to be a global heavyweight investor was a revelation for most of them, despite a series of large purchases made by it. In 2013, SoftBank acquired Sprint, an American telecommunications company, for $ 22.2 billion, and Finnish developer Supercell for $ 1.5 billion. In 2014, it launched an investment branch in California, the predecessor of Vision Fund called SoftBank International, which made very early investments in such companies. like startup ridersharing DiDi in China and Ola Cabs in India, as well as Tokopedia, an Indonesian online store with 80 million customers today. “We were fairly little known,” says David Thevenon, partner at SoftBank. - People have always been confused by the name SoftBank. '- Are you a bank? Are you a mobile operator? ' I had to explain that we have been engaged in international investment for years. ”



And when SoftBank finally began to find out, a new complexity appeared: the company needed more money for investments. This task was handed over to the former debt trader Deutsche Bank, Rajiv Misra.



Misra grew up in New Delhi. In 1981, he entered the University of Pennsylvania to study mechanical engineering and computer science. He then worked in Los Alamos on satellite development, software simulations at the Philadelphia startup Reality Technologies, and then returned to business school. He met with Son in 2002, as head of loans and new markets for Deutsche Bank. He was in charge of SoftBank loans, and then helped them structure the complex acquisition of Vodafone Japan.They met again eight years later, in the summer of 2014, at a wedding. Alibaba, the company in which Dream invested $ 20 million in 2010, shortly before this, held an initial public offering on the stock exchange, which turned out to be the largest in history. Thanks to this, SoftBank was able to enter global markets, and Son wanted Misra to work for him again. “I did not know what exactly I would need to do, but it sounded interesting,” Misra recalls.



To buy a British company, SoftBank had to sell shares of Alibaba and Supercell. The deal plunged the Japanese company into debt of $ 105 billion. “We wanted to invest in the impending AI revolution, and in all those companies that would revolutionize the entire industry on the planet,” Misra said. - Financial services, cars, hotels, office space, real estate, whatever. It seemed to us that a lack of money limited us. We said: let's raise money. Let's become the largest investment fund in the world. ” Masa called it the Vision Fund.



The investment hypothesis at the core of the Vision Fund is built around scale: the “winner takes everything” strategy. They targeted companies that ranged from 50% to 80% of the market and invested with a margin to help these companies grow rapidly and globally. “I learned this from Masa,” Misra says. - What is more important, to grow faster or be more efficient? Efficiency is the right proportion of value and profit. The point is not to count the money spent on stationery and gradually grow in the United States or in India. We believe that companies need to scale first. And having scaled, you can already correct everything else. Global barriers disappear, so if you don’t reach the global level quickly, someone else will. ”



And for this, of course, capital was required - a lot of capital. Initially, the fund planned to start with $ 30 billion - a huge amount, but not so unheard of. But that was before Masa decided it was best to start with $ 100 billion.





Rajeev Misra, director of the $ 100 billion SoftBank Vision Fund



Misra and Son made a presentation where the history of the fund’s investments was shown - at that time Arm, Sprint, SoftBank Mobile, Alibaba and Yahoo! Japan - and hone speech. In 2016, from September to December, they traveled around the world, met with US commercial companies, pension funds, and foreign funds in Asia and the Middle East. They were received politely, but the proposal was mostly met with distrust, considering the attempt to raise the amount of $ 100 billion for a single investment fund unrealistic, regardless of its ambitions.



However, despite the generally skeptical reaction, some are still interested in SoftBank offers. One of them was Muhammad ibn Salman Al Saud , the Crown Prince of Saudi Arabia.



A 500-member Saudi delegation visited Tokyo in May 2017. Before meeting with ibn Salman, Son and Misra advertised the Vision Fund idea to the Prince’s closest advisers, with whom they were brought together by former Misra colleagues from Deutsche Bank. A few days later, they received the crown prince at a state-run guest house in central Tokyo. Later in an interview with financier David Rubenstein, Son said that he then announced to ibn Salman: "I want to bring you a gift from Mas, from Tokyo - a gift of $ 1 trillion." Ibn Salman replied: "OK, now I'm interested." The dream replied: "And this is how I will give you $ 1 trillion: you invest $ 100 billion in my fund, and I will give you a trillion." Dream concluded the meeting with prior consent for an investment of $ 45 billion over the next five years.



Six weeks later, the men met again, already in Riyadh, the capital of KSA. He visited the state-owned oil company Aramco, spent time with the directors of the Saudi state investment fund. By then, Apple, Qualcomm, Foxconn, Sharp, and Mubadala from Abu Dhabi had added another $ 20 billion to the fund, and SoftBank added $ 28 billion of their money there. The signing ceremony in Riad was held in May 2017, so that it coincided with the first overseas trip of Donald Trump as the president of the United States - and the $ 100 billion Vision Fund was officially launched.



SoftBank, which had never before managed other people's money on such a scale and never launched a managed fund, now owned the largest investment fund in history, exceeding in total all the money raised by venture capitalists in the USA over the past 30 months. Fund Director Rajiv Misra felt pressure on himself. “We, as trustees, are now responsible to all these companies, our partners, Saudi citizens. And two years ago, the first incoming call came from a person who was looking for an investment? Misra recalls. - No".





Stuart Butterfield, co-founder of Slack, in which SoftBank invested $ 250 million



One day in December 2018, Misra invited Wired Magazine to the Vision Fund headquarters, in a four-story Edwardian building in the Mayfair district of London. He was barefoot, with rolled up sleeves that opened a shamballa bracelet on one arm. During the conversation, his mood changed from enthusiastic to thoughtful, in which case he paused and smoked an electronic cigarette.



Now Misra's portfolio includes more than 60 companies. It includes the share of the manufacturer of graphic processors Nvidia, estimated at $ 7 billion; $ 502 million from Improbable, a UK startup that develops large-scale virtual reality worlds for games and learning; a stake in Slack’s productivity platform of $ 250 million. Also, the consortium running SoftBank has invested $ 8 billion in Uber.



Misra leads the team of managing partners - seven of them work in the company’s representative office in Silicon Valley, two in Japan and two in London - carefully studying dozens of companies a week in search of potential investment opportunities. They regularly come together to collectively evaluate the various transactions offered by individual partners.



Then these ideas are evaluated by specialists, and an independent team checks the financial reliability, and it can take months to complete this rigorous process. In the later stages of the transaction, they are offered to the committee of investment advisers in SoftBank, which includes Dream and Misra. Upon reaching consensus, the entrepreneur is invited to a meeting with Son, who meets with each founder before entering into a transaction.



“When I met him in 2017, I explained how my company became the leading hotel company in India,” said Ritesh Agarwal, director of Oyo Rooms, the largest hotel chain in India. “I did not think then that the time had come to expand to China. He said that I definitely need to do this, and think about the possibility of staying there longer. In November, we opened our first hotel in Shenzhen. Now we are in the top five hotels in China. His ability to look into the future is unparalleled. ”



The Vision Fund's bottom line for investments is $ 100 million, and most of them range from $ 500 to several billion, usually amounting to 20% to 40% of the company's value. “They completely changed the investment scheme,” says Michael Marx, director of US startup Katerra. “Technology companies are becoming billions of dollars worth of businesses.” I think that SoftBank was just the first to see that it is possible to place much more capital and receive more profits. He invests with a margin to celebrate the winners. Such an approach may turn out to be risky and may not work, but I think that it will work. This is an amazing experiment, ”says Marx.



Of course, investments alone and an abundance of capital do not reveal the true nature of SoftBank's strengths, Son’s “leadership gathering” strategy, a complex network of connected and portfolio companies, which as a whole comprise more than the sum of the parts - and additional value arises from partnerships and business Opportunities for members of the SoftBank family.



This worldwide network includes Apple, Qualcomm, Sharp, Alibaba, Sprint (the fourth largest US mobile operator), Yahoo! Japan (unlike its American parent, which remains the most popular site in its country) and SoftBank Mobile, which raised $ 23.5 billion during the initial public offering in December, which was the second largest collection in history. Vision Fund is also one of the largest foreign investors in India, China and Europe. He has representative offices in Mumbai, Singapore, Riyadh and Abu Dhabi. “If we consider investment companies, for example, companies from the USA, they do not enter global markets, very few of them are engaged in truly global things,” says Thevenon. “And SoftBank is everywhere.”



Companies have the right to choose their partners, but synergetic alliances that benefit all parties are usually conducive to accelerating global growth. Consider the example of Ping An Good Doctor, an AI first-line healthcare provider who has entered into an agreement with Grab, a south-east ride sharing company. In China, a trip to the doctor can take three hours for a 90-second consultation, so Ping wants to use the Grab geolocation platform to speed up the scheduling and examination of patients.



By launching the machine learning platform, Oyo Rooms has managed to standardize its hotels around the world, from high-tech room reservations to housekeeping. She led an advertising company in China in partnership with DiDi under the slogan: "A comfortable trip with DiDi and comfortable housing with Oyo."



Paytm, an Indian mobile wallet startup with 450 million transactions per month, recently launched PayPay in Japan with Yahoo! Japan



And of course, there is Arm. Together with Mapbox, Cigars' company, the chip developer has already created software that allows devices based on Arm to automatically recognize road boundaries, markings, sidewalks, intersections, and traffic lights. Boston Dynamics also uses Arm processors in motor control in its latest robots.



SoftBank has fostered partnerships of this kind, and they will allow Arm to remain in the center of the vision of the singularity of the Son, and realize a future populated by robots, drones, robomobiles and a trillion devices connected to the Internet.



“I think another common denominator that goes through all our investments is data,” said Jeffrey Hausenbold, managing partner at Vision Fund. - It is all about data and the unification of man and machine around the idea of ​​singularity and AI. How do we process this data to make the world a better place, people happier, to enrich their lives, to ensure the appearance of better products and services? It doesn’t matter if we use the data to find new drugs or increase the efficiency of food delivery. Almost all of our companies are associated with the data. ”



This is Masayoshi Sona's vision: a future in which, with every use of our smartphone, calling a taxi, ordering food, staying at a hotel, making a payment, receiving medical assistance, data will be exchanged with a company belonging to the SoftBank family. And, as the Dream loves to repeat: "The one who controls the data controls the world."