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SoftBank Group Chairman and CEO Masayoshi Son visits Jakarta in July. Also pictured: the co-founder of ride-hailing unicorn Grab, Anthony Tan, second from left, and the co-founder of e-commerce unicorn Tokopedia, William Tanuwijaya, right.   © Reuters
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Hungry for growth, Vision Fund-backed startups turn investors

Buying spree may come at the cost of weaker business focus

TOKYO -- "Limit yourself to become limitless." That was what SoftBank Group Chairman and CEO Masayoshi Son told William Tanuwijaya, the founder of Indonesian e-commerce company Tokopedia.

Founded in 2009, Tokopedia is one of Southeast Asia's handful of "unicorns"-- private companies valued at more than $1 billion -- and one of 81 companies to have received the blessing of the Vision Fund, SoftBank's giant tech investment vehicle.

They typically receive investments much larger than other venture capital funds, giving them a lavish valuation in exchange for a larger minority stake. When founders meet Son, they are often reminded to prioritize growth above everything else. "Most questions you get asked [from Son] is about scale. How big can you be? How quickly can you do it?" said one venture capitalist.

The Vision Fund's obsession with speed and scale pushes its portfolio companies to make acquisitions. For Tokopedia, that was the 2019 buyout of Bridestory, a local wedding organizer. Bridestory was, at best, tangential to Tokopedia's core business of running an online mall, but the company justified it by saying that the acquisition gave it a foothold in a new segment: providing technology to companies in the offline world.

Other Vision Fund portfolio companies have been on buying sprees this year. Over the last few months, Oyo, an Indian hotel startup, bought a Las Vegas hotel, Indian shared office space provider Innov8 Coworking and Dutch property management company @Leisure Group. The last deal alone was worth more than $400 million. Chehaoduo Group, a Chinese used car sales service, acquired car sharing platform Start. The We Company, the operator of WeWork shared offices that recently filed for an initial public offering, acquired three startups in July and August.

Like Tokopedia, some companies are looking to move beyond their core operations to become "platforms" or "super apps"; others are looking far down the line to technologies that could be complementary in the future. DoorDash, a U.S. food delivery startup and Vision Fund investee, recently acquired Scotty Labs, a startup developing technology to remotely control autonomous driving cars. The move is an indication that DoorDash is following its ride-hailing peers, such as Uber Technologies, in a bid to replace drivers with computers.

The trend has given a boost to startups, particularly those in South and Southeast Asia, where public markets are underdeveloped. By taking investment from platform companies, startups can get access to new markets and new customers. Grab, the Singapore-based ride-hailing company, operates a venture capital arm that says it not only invests in startups but also gives them access to its user base.

For early investors and founders looking to cash out, the Vision Fund has emerged as an alternative venue to stock exchanges, a process that has become known as a "Masa Public Offering," or MPO -- a reference to Son's nickname.

"An MPO is our IPO," said Vijay Shekhar Sharma, founder of Indian fintech unicorn Paytm. "It's important for us to remain private for at least two to three more years."

Son, who has famously said that he is investing on a 300-year time horizon, may back these investments on the basis that they add long-term value, as well as scale and scope, to his portfolio companies. However, it is unclear how much a broader base of investors will embrace them, especially since many of the companies are still loss-making. The acquisitions are "a signal of excess capital given to early stage companies," said one Asian investment banker. Investors' low tolerance against huge losses in favor of growth has been demonstrated in the post-IPO performance of Uber, which recently reported its biggest quarterly loss of more than $5 billion. Its shares are down more than 20% from its offering price in May.

"These companies become bigger and bigger but their fundamentals are not as firm because they are doing 50 different businesses," said Nikhil Kapur, partner at venture capital firm Strive. "I think these companies will end up dissolving a lot of these businesses and focusing on profitability."

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