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Protocol Pipeline
The inside story of the venture capital and startup world by Biz Carson.

What is SoftBank up to now?

What is SoftBank up to now?

Hello and welcome to Pipeline. I hope this kicks off a great three-day weekend for you. I have big plans, like signing off Twitter for a few days and regaining my surge capacity. This week: The drama of @VCBrags, more online harassment, and where SoftBank is investing with Vision Fund 2.

If you were forwarded this email, be sure to sign up here. Also, become an early adopter and sign up to receive the first edition of my colleague Janko Roettgers' new newsletter, Next Up, on the future of tech and entertainment. It starts next week.

Overheard

  • đź‘‹ đź‘‹ đź‘‹ Three claps from @VCBrags drove the venture capitalist world nuts, but now the parody account has shut down. It always had a love-hate relationship with VCs, but the drama escalated after VC Sahil Lavingia (apparently jokingly) claimed to know who was behind it as the ultimate VC brag. Then @VCBrags pretended to be Lavingia, a screenshot went viral, and conspiracy theories started flying. By Monday, @VCBrags decided to call it quits, Jason Calacanis claimed credit for the account (and for inventing bitcoin!), and TechCrunch published the definitive post on the matter.
  • Serena Williams is a fan of the SEC this week. Changes to accredited investing rules mean that "VC is no longer exclusively for individuals who have extremely high income or net worth," the tennis star and venture capitalist tweeted. It could open the door to new groups of investors, something her firm has already been working on.
  • "It would be an understatement to say that a lot of stuff is pretty f'd up right now." Chris Sacca is making a bet that govtech startups will have a higher ROI for the future of politics than donating to Super PACs and consultants. He published a guide to the efforts he's supporting, warning: "This could be the last free election of our lifetimes."
  • Freestyle's founder Josh Felser is losing sleep over the fate of the Earth and left the firm he started to build a new kind of organization to back planet-friendly companies: "I believe the best way to effect change is … to create financially viable large companies that are going to be around for a long time, and have greening the Earth as part of what they do, not as a nonprofit, but as a for-profit enterprise."

Biz on Biz

SoftBank takes new aim

SoftBank's Vision Fund made headlines with bets on Uber and WeWork — and the sky-high valuations that collapsed shortly thereafter. But after closing the fund and keeping a low profile, SoftBank is starting to place some new bets, and its targets have changed.

Turns out, SoftBank is the "Nasdaq whale" that fueled the tech stock rally, according to a bombshell report from the FT. It reportedly spent billions to buy call options and set up a new unit to control its public investments. (SoftBank declined to comment on the report.)

  • Among the stakes SoftBanks owns: Amazon, Alphabet, Microsoft and Tesla.
  • "It's another case of them trying to win from behind," one investor told me.

The public market play is definitely new and comes with the alarm bells of having watched valuations balloon in the private markets thanks to the Vision Fund. But it's not all that SoftBank is doing: It's now restarted investing with its Vision Fund 2.

First, a reality check on VF2, which SoftBank originally announced last summer as a $108 billion fund focused on AI. SoftBank was going to pony up $38 billion for the fund, then have a bunch of companies like Apple, Microsoft and Foxconn round it out.

  • That … didn't happen. Vision Fund's poor performance meant that it had trouble securing other backers, a problem Masa Son acknowledged in May: "If the performance is not very good, then of course the money for Vision Fund 2 cannot be asked for."
  • Fun fact: VF2 investments currently come with a fancy footnote about the lack of an external close: "SoftBank Group Corp. has made capital contributions to allow investments by SoftBank Vision Fund 2 ('SVF 2') in certain portfolio companies," it says.

So while VF2 might not be closed, it's already busy. While we wait to see if the second fund can match or exceed the size of its predecessor, in the meantime SoftBank's own cash is being used to write checks and has committed over $2 billion in nine companies so far, the firm said.

  • Health tech is a major focus in VF2. SoftBank has invested in new health tech companies like digital pharmacy Alto, gene therapy company Encoded Therapeutics, infectious disease diagnostics startup Karius and digital therapeutics company Biofourmis.
  • Also COVID-inspired? Leading a $150 million investment in Indian online learning startup Unacademy.
  • Most investments are in APAC, including a lot in India. SoftBank's only consumer investment to be announced for VF2 so far is in Lenskart, a Warby Parker for India. Even Biofourmis was originally a Singapore-headquartered company before moving its home base to Boston.
  • It hasn't done as much in the U.S. "What I see them doing is trying to figure out where to double down in the U.S.," said one investor who has co-invested with SoftBank. Founders the investor speaks to also aren't as interested in having SoftBank on their cap table. "If you're a high-quality company with lots of options, I don't know why you would go in that direction," they said.
  • And the check sizes are often smaller this time. The average first check from the Vision Fund was $400 million, but so far many of the VF2 rounds are just $100 million to $150 million, like in the case of AI startup Behavox.

But SoftBank can't resist writing some big checks. Chinese ride-sharing startup DiDi announced over the summer that it had raised $500 million, led by the VF2, for its autonomous vehicle unit. VF2 also wrote a large check into real estate platform Beike, which went public in August.

  • Where has it pulled back compared to last time? So far it doesn't identify any frontier tech investments, like Arm, either, and it hasn't publicly announced any new investments in transportation and mobility beyond still backing Didi.

Still, Masa Son has said that the firm's "strategy hasn't changed," according to The Wall Street Journal. And it's still attracting entrepreneurs who are willing to look beyond the headlines and focus on the positive side of things.

  • "We knew exactly what we wanted, which was financial backing by somebody who could open new markets for us," said Biofourmis' CEO Kuldeep Singh Rajput. "Certainly Japan, China, the Middle East are lucrative markets with clinical unmet need where they could certainly open up opportunities." Instead of the traditional pilgrimage to Japan to meet Son, he closed the deal with Son over video.
  • "Certainly there are headlines, but if you look at their health care portfolio, it's done pretty well, and SoftBank has been able to support them," he said. "So I was looking at it more from a positive angle and focusing on what matters to us as a company."

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Inside Track

Need to Know 

  • SPAC-watch 2020: Reid Hoffman and Mark Pincus are launching a tech-focused SPAC. Foresite Capital's Jim Tananbaum is also doing a biotech focused one. Airbnb reportedly turned down Bill Ackman's super SPAC. And gaming platform Skillz is merging with Flying Eagle to go public. (Have I mentioned that I love the ridiculous names of SPACs?)
  • The Collison brothers are an investing tour de force. The Information has a great dive into how the Stripe co-founders are becoming VC's "newest threat" and how their investments are closely tied to the payments company.
  • All Raise launched its Visionary Voices speakers bureau. Protocol is one of its founding media partners, and we've committed to organizing diverse events — and no more manels.
  • From Protocol: Fast has a plan to reinvent online shopping. And then kill the password.
  • This week in VC history: Four years ago, the WSJ got its hands on A16Z's returns, which "trailed the venture capital elite." The article has hung over A16Z since, but as Mark Suster argued at the time, it won't stop founders or LPs from being attracted to the firm. Also, if you have an updated copy of A16Z's returns, feel free to email them to me.
  • And your weekend reading: "If anyone could outsmart a wildfire, it would seem to be Tad Jones." It's a story not related to tech except by proximity, but I highly recommend The New York Times' story on "A vow of silence, a cabin in the woods, a terrible fire."

Five Questions For...

The Community Fund's Lolita Taub

What's one startup or product that failed or was shut down that you wish were still here today?

Accompany. I loved getting their email briefs before my meetings. They'd include details on the people and organizations I was meeting, making it easier to build relationships quickly. Unfortunately, Cisco acquired Accompany and then shut it down.

What's a secret obsession of yours that most people don't know about?

Reflexology, a form of massage involving applying varying levels of pressure to the feet. Yes, there is a bit of pain involved, but after all the foot knots are worked out … WOW. It feels so good that I'm working on getting my husband to learn how to do it on me.

What do you think is the most significant change happening in venture capital right now?

A new type of VC has arrived. The new VC is scrappy, transparent and community-centric. New investors are not waiting for a Sand Hill Road fund to give them a VC golden ticket. They're carving out their own path and building out their brands online (e.g., Twitter, Substack). These investors are sharing their values, journeys and investment thesis and harnessing personal deal flow. That deal flow is increasingly becoming the communities that the investor serves and writes checks into. New and old LPs are watching all of this happen and wanting to invest in these investors. That's leading these new investors to launch new funds — raising money from LPs and investing in founders in their respective communities.

What did you want to be before becoming an investor?

There was a time when I took a sabbatical from the tech world to live out my dream of living a slower-paced life as a yoga instructor. We moved away from the hustle and bustle of Los Angeles to relaxing, sunny San Diego, and I went through a 200-hour yoga teacher training program. But I found that while I liked yoga, I missed the fast pace of the tech scene. So, I jumped back in, and fast forward — I'm now co-founder and general partner at The Community Fund alongside my partner Jesse Middleton.

What was the biggest lesson you learned in raising your new fund?

Twitter is an underrated tool for fundraising and connecting with your future fund's co-founders and partners.

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