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64

Venture capitalists may have breathed a

sigh of relief in February when the activ-

ists came calling for SoftBank Group

Corp. founder Masayoshi Son. The

Japanese company’s $100 billion Vision

Fund upended technology investing

when it began making outsize bets on

startups in 2017. Being the biggest ven-

ture fund in history meant its portfolio

companies didn’t have to worry about

profit anytime soon, while making it

harder for rival investors to get in.

Paul Singer may have put an end to

all that. Elliott Management Corp., the billionaire’s activ-

ist vehicle, has built a stake of almost $3 billion in SoftBank

and is demanding that Son refocus attention on its exist-

ing business. The Vision Fund accounts for just 10% of

SoftBank’s overall managed assets, runs the argument, yet

consumes 100% of investor attention.

Son’s plan to raise a larger second fund was already

proving difficult after last year’s ditched initial public offer-

ing of WeWork parent We Co. The fiasco highlighted major

defects in the way the fund, and by implication SoftBank

itself, is run. But VC firms would be wrong to think pres-

sure on SoftBank and the Vision Fund makes their lives

easier. Even if Son fails to raise the new capital, the Vision

Fund has fundamentally changed the landscape.

Venture capital is hard not just because it’s tough to find

the best investments, but also because the most promising

startups often have the luxury of choosing whose money to

accept. Storied firms like Sequoia Capital, an early investor

in Apple, Google, and LinkedIn, have a

significant edge over the arrivistes. To

get over that hurdle, the Vision Fund

weaponized its cash pile, bullying com-

panies into acceptance by threatening

to invest in rivals. “Rather than hav-

ing their capital cannon facing me, I’d

rather have their capital cannon behind

me,” Uber Technologies Inc. Chief

Executive Officer Dara Khosrowshahi

said in 2018.

To compete, rival funds have gath-

ered their own vast stacks of money,

helped by the dearth of good returns elsewhere. More

money poured into venture in both 2018 and 2019—the two

years the Vision Fund started investing—than had in any

previous year, as Sequoia, Andreessen Horowitz, and other

firms raised their biggest funds yet. And the average size

of new funds grew to the biggest in more than a decade,

according to data from PitchBook Data Inc.

These monster funds, while smaller than SoftBank, still

have to compete with one another. And they won’t have the

option of exiting by selling their stake to the deep-pocketed

Japanese firm. Son has also inadvertently changed public

investors’ expectation of startups. In addition to WeWork,

the disappointing market debuts of SoftBank stablemates

Uber and Slack Technologies Inc. have refocused attention

on old-fashioned metrics such as, dare I say it, free cash

flow. Somehow the Vision Fund has managed to make it

harder for venture capitalists to both invest and then find

ILLUSTRATION BY GEORGE WYLESOL an exit. <BW> �Webb is a columnist for Bloomberg Opinion

By Alex Webb

SoftBank’s Woes Are Not

A Victory for Rival VCs

◼ LAST THING

With Bloomberg Opinion