Friday13 March 2020 ★ FINANCIAL TIMES 13
M I L E S K R U P PA— SAN FRANCISCO
Keith Rabois s cleari aboutSoftBank
and its $100bn Vision Fund: it has been
“an unmitigated disaster for Silicon Val-
ley companies”.
Mr Rabois, a partner atFounders
Fund, has been one of SoftBank’s most
vocal critics, raising issuesover its will-
ingness to invest large sums at high
prices in elatively young companies.r
He is echoed by a growing number of
venture capitalists and start-up found-
ers, whose influence threatens the
investor’s attempts to jump-start a sec-
ond Vision Fund with billions of dollars
of its own money.
Despite making several investments
inValley companies in recent months,
at least one other firm hasrebuffed Soft-
Bank’s approaches.
Meanwhile, the list of complaints in
the tight-knit tech community about
thegroup’s practices — from walking
away from proposed deals to exercising
a h eavy hand with portfolio companies
— is growing.
“There’s been a very significant
change in the last three to nine months,”
Mr Rabois said. “I think there’s enough
people who have had experience work-
ing with SoftBank that, if you do your
reference checks, you end up with a
more nuanced perspective.”
Venture capitalists — a clubby group
concentrated in San Francisco’s South
Parkdistrict and theMenlo Park suburb
— have long complained about Soft-
Bank’stactics.
SoftBank’s war chest carries the
threat of muscling out early investors,
diluting their ownership stakes in com-
panies nearing crucial acquisitions or
public offerings.Sequoia Capital ash
raised its own $8bn fund to compete for
deals in large, private tech start-ups.
“There’s almost a protectionist men-
tality,” said oneinvestor who has
worked on deals with SoftBank. “People
are deeply uncomfortable about their
business model being affected.”
In recent months, SoftBank has
sought to move past debacles such as
WeWork’s collapse, announcingnew
investments in US start-ups via its sec-
ond Vision Fund, includingdrug deliv-
ery companyAlto Pharmacy, disease
testing groupKarius nd financial dataa
analytics companyBehavox.
But SoftBank has met resistance from
venture capitalists concerned about its
interactions with founders and steep
lay-offs at companies it has backed,
such as the retailerBrandless nd pizzaa
box makerZume.
SoftBank’s conduct angeredAndrees-
sen Horowitzafter the home care
start-upHonor, backed by Andreessen,
saw SoftBank walk away from a pro-
posed deal, two people familiar with the
transaction said. Andreessen declined
to comment.
Mr Rabois said reports of SoftBank
withdrawing term sheets — non-binding
investment agreements — were a“major red flag for many people in Sili-
con Valley”.
The Vision Fund said: “There have
been a few cases where our rigorous inv-
estment process took longer than antici-
pated, which we regret. We’re humbled
that over recent months the founders
we’ve wanted to get into business
with have chosen to partner with us.”
Others accused SoftBank of exercising
a heavy hand. Thegroup last year urged
food delivery companyDoorDash nda
Uber o discuss a merger, the Ft T
reported. DoorDash was coolon the
idea, believing it had stronger prospects
as an independent.
The Vision Fund aids : “We value our
relationships with our fellow investors
and work closely with them to help
ensure our portfolio companies suc-
ceed.But you can’t invest at our scale
without ruffling some feathers.”Recently, SoftBank’s doubters feel
they have found some vindication. The
Vision Fund disclosed last month that it
had reduced the value of 27 investments
in the fourth quarter while marking 22
higher, though it maintained a greater
balance of positive investments.
Some start-ups have rebuffed Soft-
Bank’s approaches, among themSnow-
flake, the data analysis groupvalued at
$12.4bn, according topeople familiar
with the discussions. “We have selected
investors that are the right fit for the
future of Snowflake,” the company said.
To the dismay of many inSiliconVal-
ley, the fund hasreportedly walked
away from investment term sheets
issued toseveral companies.Paul Gra-
ham, co-founder oftech investment
groupY Combinator, called t “one ofi
the most damaging things that can hap-
pen to a start-up”.In the case of Honor, SoftBank came
close to investing and presented the
company with proposed investment
terms following months of talks. But
the dealbroke down after being
presented to the Vision Fund’s invest-
ment committee, people familiar
with the talks said. Honor declined to
comment.
The Vision Fundbacked away from
investing inlab-grown meat group
Memphis Meats fter fund investorsa
asked SoftBank to focus on more
mature companies closer to profitabil-
ity, people familiar with the talks said.
SoftBank’s corporate group ended up
investing less than $100m in the com-
pany, leading a funding round with
other investors includingSingapore’s
Temasek. The Vision Fund could invest
in Memphis Meats if it hit ertainc tar-
gets, one of the people said.Some start-up founders have wel-
comed SoftBank’s large investments.
Mattieu Gamache-Asselin, co-founder
ofAlto Pharmacy, said he experienced
an open negotiation process with the
Vision Fund, which led to a $250m
investment round in the company.
“We had our own philosophical dis-
cussion on what the partnership was
going to be like,” Mr Gamache -
Asselin said. “It was more transparent
and candid than I ever thought.. a.
growth investorwould be.”
SoftBank hasbecome hard to avoid in
Silicon Valley, even forcritics.Open-
door, the real estate group where Mr
Rabois of Founders Fund serves as exec-
utive chairman,gained 400m in back-$
ing from the Vision Fund in 2018.Door-
Dash, which Mr Rabois backed in its
infancy, has also jumped to the head of
the US market since the Vision Fund
invested thatyear.
SoftBank has said more than 130
investors either participated in funding
rounds alongside the Vision Fund or
backed subsequent financings.
“I’m sure there are a handful of com-
panies where the capital provided by
SoftBank has been useful oxygen,” Mr
Rabois said. “That doesn’t mean they
couldn’t have received oxygen with less
pain, less friction and less annoyance
from other sources.”COMPANIES
SoftBank’swaysmakeforanunhappyValley
Complaints pile up over Vision Fund’s withdrawal from planned deals and heavy-handedness with portfolio groups
The rise and fall of WeWork’s
valuation* Based on a presentation from the
investment bank
Sources: FT research; Crunchbasebn JPMorgan
bn-
bnGoldman
Sachs
bn-
bnMorgan
Stanley
bn-
bn* bn
valuation
since
Oct Top Wall Street banks pitched
high-flying potential valuations
to WeWork executives
RangeSoftBank’s war
chest carries the
threat of
muscling out
early investors,
diluting their
ownership
stakes in
companies
nearing crucial
acquisitions or
public offerings
Kiyoshi Ota/BloombergMARCH 13 2020 Section:Companies Time: 3/202012/ - 18:11 User:andy.puttnam Page Name:CONEWS2, Part,Page,Edition:EUR , 13, 1