August 31, 2017 10:00 am JST

Masayoshi Son's 300-year plan

New $100bn fund targets AI players that will take SoftBank far into the future

TAKASHI SUGIMOTO, Nikkei staff writer

TOKYO Masayoshi Son, the charismatic leader of Japanese tech giant SoftBank Group, must wake up sometimes wondering which country he's in. More often than not, it's the U.S., in Silicon Valley, where he has a house.

His private jet, in which he zips around the globe, has flown to the U.S. west coast repeatedly in the almost 100 days since May 20, when SoftBank and its partners, including Saudi Arabia, launched the $100 billion SoftBank Vision Fund.

Gradually, Son's ambitions for the fund are becoming clearer.

"The gold rush in artificial intelligence is coming for real," Son said recently. California's original gold rush came in the mid-19th century, drawing hundreds of thousands of prospectors from across the country.

Now Son is discovering and investing in some of the major players hoping to mine the AI rush.

The fund has not announced amounts for its investments, but sources say many are in the tens or hundreds of billions of yen.

300-YEAR PLAN The investments are not necessarily related to SoftBank's core telecommunications business. Guardant Health, for example, is a medical care startup that analyzes DNA to detect cancer at an early stage.

Another startup, Plenty, is an agriculture company that turns walls of buildings into vegetable fields. It also specializes in efficient indoor farming, which could boost food production near big cities.

Brain Corp. converts commercial machinery into autonomous vehicles that can assist in cleaning.

At first glance, SoftBank seems to be investing in a hodgepodge of companies through the $100 billion fund.

Think of it as casting a wide net.

Son has often said, "AI will redefine all industries in the future." Each SoftBank Vision Fund investment has been in a startup that uses AI to challenge the current definition of one industry or another.

The entrepreneur-cum-venture capitalist has always had outsized ambitions.

"We have no intention of being merely an investor. This is not a money game," he said. "The Vision Fund is the linchpin of our 'fleet strategy.'"

His aim? "We will create a company that can grow, 300 years down the road," he said.

Son understands that no technology or business model lasts forever -- or even especially long, given the current pace of change. So SoftBank will need to perpetually evolve its technologies and businesses -- or be left in the dust.

So Son is mobilizing his full network of personal connections and reaching into his decades of experience on information technology's cutting edge to find and invest in startups that could become major players in the years ahead.

But investment does not mean taking majority stakes or making the recipients subsidiaries of SoftBank. Son usually limits SoftBank's investments in promising startups to stakes of 20-40%.

The telco-led group is pursuing a loose group of companies. Within the group, Son believes he can find game changers.

It is not just technology that Son is on the lookout for. Equally important is the business acumen of a startup's founder. Famously, it took him five minutes of chatting with Jack Ma Yun to decide to buy into Alibaba Group Holding.

That $20 million investment was 17 years ago. Three years ago, when Alibaba listed in New York, Son's stake was worth $50 billion.

VETO POWER Here is a more recent example of Son's personal style. Last October, Yuki Saji, president and CEO of SB Drive, a Japanese self-driving bus startup and SoftBank subsidiary, gave a presentation to two powerful entrepreneurs -- Son and Jensen Huang, the Taiwan-born American entrepreneur and founder of semiconductor company Nvidia.

Nvidia boasts advanced image-processing technology and has drawn global attention as a key supplier to the fledgling self-driving car industry.

At the meeting at the luxurious Conrad Hotel in Tokyo's Shiodome district, next door to SoftBank headquarters, Saji was trying to secure a technological alliance with Nvidia. As soon as he ended his presentation, Son asked Huang an entirely unrelated question.

"The earth will become one computer in due course," Son began. "What will you do then?" The two charismatic business managers were soon deep in conversation. Saji was left out in the cold.

"Yes! I totally agree with you," Son was soon saying excitedly. "Let's think about a bigger deal than just a technological alliance."

Son later decided to acquire a 4.9% stake in Nvidia for about 400 billion yen ($3.66 billion), making the U.S. company a new group member. Son describes Huang as a "like-minded friend."

But there is no guarantee the SoftBank Vision Fund will be able to continue to invest as Son wants.

The $100 billion fund moved toward realization after Son directly won over the current Saudi crown prince when the latter visited Japan in September 2016. They reached a basic agreement in October, but it took more than six months after that for the fund to take off.

TOUGH TALKS The launch was delayed by tough negotiations between SoftBank and Saudi Arabia. Under their agreement, investment projects proposed by SoftBank are put before the fund's investment coordination committee, which has the power to veto them.

If the committee actually vetoes any specific projects, SoftBank will have no choice but to invest in them single-handedly, rather than through the fund.

There are potential political risks as well. The truth is that Son first floated the fund idea to Qatar. Even after SoftBank reached an agreement with Saudi Arabia, Qatar expressed its desire to participate.

But Saudi government officials never agreed to Qatar's participation and Saudi Arabia later led a group of countries in severing diplomatic relations with Qatar.

So far, Son's investments have been ultralong-term -- payback periods average 13 and a half years.

The Vision Fund's partners are unlikely to wait that long, though, as they will expect much quicker returns.

SoftBank's consolidated financial results included the $100 billion fund for the first time in the April-June quarter. The project got off to a smooth start, posting an operating profit of 105.2 billion yen for the quarter.

Son struck a bullish tone. "If the fund goes smoothly, it will help boost SoftBank's earnings by several hundred billion yen annually."

But the scale of the SoftBank Vision Fund is so massive that it runs the risk of incurring huge losses.

Son turned 60 on Aug. 11. He has said he will choose a successor to take over his businesses while he is in his 60s. This person, who has yet to be named, will take the position within the next 10 years.

Until then, the impact of the SoftBank Group and its enormous Vision Fund will largely depend on Son's ability to see what the future holds.

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