How SoftBank became tech’s phantom buyer

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SoftBank is making quite a name for itself, but in ways it might not expect. Hardly a week has passed in 2017 when a headline hasn’t reported that SoftBank — the multinational conglomerate currently raising a stunning $100 billion fund — is in financial talks to invest in yet another tech company.

This week, SoftBank is reportedly in discussions to pour $1.4 billion into the India-based digital payments company Paytm. Last week, it was reported to be close to an investment in Improbable Worlds, a London-based virtual reality startup backed by Andreessen Horowitz. Last month, the reports centered on talks that SoftBank is having with coworking giant WeWork about a new round of funding that could reach into the billions of dollars. (So far, $300 million has come through.)

Even news of the ostensible closing of SoftBank’s new Vision Fund — which is unprecedented in its size — was leaked in February. The reality, say sources familiar with the fund, is that it could be another six to nine months before every i is dotted and t is crossed, given how many investors, countries and regulators are involved.

Certainly, some of these deals will happen as widely anticipated. SoftBank’s negotiations with Didi Chuxing, China’s ride-hailing giant, were leaked to the media nearly one month ago; the deal was made official this week.

Last October, it was reported that SoftBank was in talks with the satellite internet startup OneWeb about a strategic tie-up. SoftBank invested $1 billion in the company two months later. (In February, it invested another $1.7 billion into a merger that will see OneWeb combine with competitor Intelsat.)

Still, the internet is littered with stories of companies that were reportedly on the verge of sealing a deal with SoftBank and that did not. Last month, it scrapped a planned $100 million investment it was to make in renowned entrepeneur Andy Rubin’s newest startup. In 2014, it was reported to be eyeing an investment in the mobile giant Vodaphone Group; nothing came of it. Last year, at least a dozen outlets reported that SoftBank was in talks to buy a 20 percent stake in the beleaguered Indian handset maker Micromax Informatics for up to $1 billion. That deal never closed, and one source familiar with SoftBank’s thinking says it was “all bullshit. There was zero chance they  would even consider investing in Micromax.”

Talk Talk

For venture industry watchers, such leaks are highly unusual, to say the least. The typical modus operandi in VC land is to “keep quiet if you have an inside track on an investment, because you don’t want to create competition,” notes Tom Peters, the founding partner and managing director of the advisory services firm Inverness Advisors.

“Obviously, there are [venture] players that pay attention to each other and compete for deals and have relationships with the same founders, and they’d rather keep what they’re doing quiet until a deal is done.”

So-called optics are another reason that no one in venture capital wants to announce a deal until it’s closed. “Deals that don’t happen can certainly make it harder to continue conversations with other investors,” says Peters. He believes that people “generally underestimate how hard it is to get a deal of any nature closed,” and that it “shouldn’t reflect negatively on a company if a deal doesn’t come to fruition,” given that a reason for abandoning talks “could be anything.”

Still, negotiating parties have tended to keep such conversations confidential, so what’s so different about SoftBank? A good many things, say those who’ve followed the company for years and are wholly unsurprised by the dizzying number of stories reporting on the company’s conversations. One such analyst, Singapore-based Atul Goyal, a managing director at the investment bank Jefferies, says that it’s nothing new, in fact. “It may be unusual for the venture industry [for talks to leak], but given the number of parties involved with SoftBank, it may not be unusual for SoftBank.”

Goyal is speaking partly of the long and growing list of limited partners who are committing capital to the Vision Fund, a group that already reportedly includes Apple, Qualcomm, Foxconn, Oracle Chairman Larry Ellison and Saudi Arabia’s Public Investment Fund, which said last year it would contribute up to $45 billion after apparently lengthy talks between SoftBank founder and CEO Masayoshi Son and Mohammed bin Salman, who is Saudi Arabia’s deputy crown prince. “It’s essentially LPs who’ve never invested in VC or where this is their first time investing in tech, and they don’t know how it’s done,” says another SoftBank analyst who asked not to be named for this story.

The size of some of the deals that could potentially involve SoftBank is likely another factor in word seeping out. While venture-size deals haven’t routinely leaked before their close, the current landscape features “significantly larger rounds than in the past, and they happen over time and in very long chunks,” observes Peters.

Indeed, it’s no surprise that these companies are seeking meetings with SoftBank. As Son told Bloomberg earlier this year of Vision Fund, “This won’t be a typical fund . . . Most of our investments will range between 20 and 40 percent, making us the largest shareholder and board member, in a position to discuss strategy with the founders.”

But such deals also involve a lot of people, from bankers to shareholders to management teams, some of whom may have their own agenda in leaking discussions to the media.

Lies, lies, lies, yeah

So how to tell fact from fiction when it comes to SoftBank? For his part, Goyal suggests that the more noise around a deal, the less likely it is to be completed. “The biggest deals that happen are unlikely to get reported in advance, because those involve Masa, and he is very discreet.”

He points to Sprint and ARM as “examples of how [Son] gets involved directly.”

In 2013, Sprint shareholders approved a $21.6 billion deal with SoftBank, giving the company control of the carrier. It took eight months of discussions to finalize an agreement between the two, but SoftBank’s plans initially surprised many, not least because Sprint seemed more likely to merge with a domestic rival. (Sprint remains SoftBank’s largest American asset.)

Similarly, SoftBank took the the tech world by surprise last year when it announced plans to buy British chip designer ARM Holdings for roughly $31 billion —  the biggest-ever purchase of a European tech company. (It has since sold 25 percent of its stake in ARM to the Vision Fund, reportedly to woo Mubadala, an Abu Dhabi state-backed investment group, into investing in the vehicle.)

“Yes, SoftBank is ‘involved in discussions,’ ” says the analyst who asked not to be named. “They have 15 to 20 people [investing the Vision Fund] in San Francisco and London and Japan and they sit down with management teams and they listen.”

Sometimes, says the analyst, it’s because SoftBank is interested in the company. Sometimes, it’s intelligence gathering to help inform its other investments in the ecosystem. “A lot of these are just meetings.”

Put another way, some of SoftBank’s reported discussions with companies will turn into real investments. But don’t be surprised if a healthy percentage end up going nowhere.

“Of the 10 or so deals that are being reported in media,” says Goyal, “a majority of these will not come through.”

Featured Image: Image: Koki Nagahama/Getty Images/TechCrunch