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SoftBank's $100 billion tech fund zeros in on big data

As the Vision Fund turns one, its first big big payday is on the way

Masayoshi Son wants to set up the funds,the Vision Fund 2,3,and 4,every two or three years.

TOKYO -- It has been a year since the SoftBank Vision Fund was launched, and a pattern has emerged. Masayoshi Son has been using his nearly $100 billion armamentarium to invest in technology companies that gather user data.

According to the SoftBank Group's most recent results, the fund, which marked its first anniversary on Sunday, had invested $29.7 billion by the end of March. This means about one-third of the fund's cash has been invested.

The fund contributed 302.9 billion yen ($2.72 billion) to SoftBank Group operating profit for the year through March.

The huge fund began with a mountain of money that was roughly equal to the total invested amounts of all the world's other venture capital funds. It began after Son, the SoftBank Group's chairman and CEO, persuaded Deputy Crown Prince Mohammed bin Salman that data could be an income source for Saudi Arabia, replacing oil. Soon afterward, a Saudi government-affiliated fund anted up $45 billion. SoftBank came through with $28 billion, while the rest of the capital was put up by the state investment fund of Abu Dhabi, Apple, U.S. chipmaker Qualcomm and Taiwanese-owned electronics maker Sharp.

Headquartered in London, the SoftBank Vision Fund is led by Rajeev Misra, who worked for Deutsche Bank and UBS before joining the SoftBank Group as head of strategic finance.

Son puts together the fund's investment strategies. "It's nonstop fun spending time every day analyzing companies for prospective deals," Son has said.

Investee companies vary in scale and industry but all make use of artificial intelligence or big data. Son has a particular affinity for companies that collect large amounts of user data.

This explains why Son bought into WeWork, a U.S.-based shared-office provider that began in 2010. In 2017, WeWork posted revenue of about $900 million, a twelvefold increase from four years earlier. As more workers around the world adopt lifestyles that do not bound them to fixed office locations, the company has steadily built up a reservoir of user data.

Nvidia also fits the big data mold. The U.S. concern is a major supplier of graphics-processing chips and possesses essential technologies for artificial intelligence systems and self-driving vehicles.

Nvidia CEO Jensen Huang has described Son as a visionary and the only person who foresaw the mobile and artificial intelligence revolutions.

The SoftBank Vision Fund applies strict standards when selecting investment targets. Its investment in Wag Labs, which operates a mobile app service matching dog owners with people willing to take dogs for a walk, might not appear readily justifiable. But with the largest share in the U.S. market for this segment, the company is scooping up a lot of data.

The smartphone has become an essential tool not only for those who own one but also for parties that gather big data. Many of the fund's investee companies operate via smartphone apps.

Son's strategic outline looks something like this:

Step 1. Buy up companies rich in user data and artificial intelligence.

Step 2. Collect and analyze the vast pools of user data that these companies are filling.

Step 3. Create new businesses based on these analyses.

When it comes to discovering early-stage startups with promise, the size of an investment fund matters. In this regard, the SoftBank Vision Fund has no peer. Its vast girth, though, as well as the amounts it is investing, have brought criticism from parts of the venture capital industry that do not like the rising cost of investing in a startup.

Son did not seem bothered by these assessments. In an interview with Nikkei in October, Son said 10 trillion yen is not enough at all. "I want to set up other funds, the Vision Fund 2, 3, and 4, every two or three years," he said.

The SoftBank Group has invested more than 800 billion yen in Uber Technologies, the U.S. ride-hailing service, and plans to transfer its Uber shares to the Vision Fund, which could find its nearly $100 billion kitty emptied sooner rather than later.

"We will set up the second Vision Fund in the near future," Son said in a speech in Tokyo in May.

The fund's structure allows it to expand by tens or hundreds of trillions of yen.

The Vision Fund seems to have gained the trust of the financial industry. Japan's three megabanks, including Mizuho Bank, as well as non-Japanese institutions, earlier this month announced their intention to put a combined 1 trillion yen or so into the fund.

Since the fund's strategy is to buy into startups and other emerging businesses, it runs the perpetual risk of its investments turning sour. On the other hand, it has already had one big success.

Son has announced that the Vision Fund will sell its stake in Flipkart, an Indian e-commerce company, to U.S. retailer Walmart. The return is expected to be around 150 billion yen; the fund will have owned the stake for a little more than six months.

The fund will not always be able to flip its investments for handsome returns. But unlike many investment funds and venture capitalists, the Vision Fund is not gunning only for returns. Its mission appears to be to pursue big data and artificial intelligence and build new businesses in sectors that the numbers point to.

So where is the exit strategy? The answer remains murky. And the fund's aspirations could even delay decisions to cut losses on bets that have not paid off.

Another concern is possible conflicts of interest between the SoftBank Group and the fund. Although both have committees to monitor and avoid any such clash, it remains possible that a Vision Fund investee could compete against SoftBank in one sector or another.

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