SoftBank Vision Funds: Investment Strategy—SoftBank Group Report 2022
A Continued Conviction
in the AI Revolution
Corporate Officer, Executive Vice President,
SoftBank Group Corp.
CEO, SoftBank Investment Advisers
Fiscal 2021 will live in the minds of investors as a year of two parts. Over the year, the NASDAQ stock market reached a high of 16,212.23, with P/E multiples across the market averaging above 20x. Demand for private technology companies transitioning to listed markets was also high with a record number of 384 listings taking place, raising $92 billion, more than double the total raised in the previous year.*1 In my update to you last year, I discussed the rapid surge in digital adoption brought on by the global pandemic. While the negative impacts of COVID-19 began to recede in fiscal 2021, the demand for digital products and services provided by our portfolio companies remained high. Even as consumers revert to some traditional buying habits, the convenience and speed of digital consumption has seen baseline usage reset substantially higher than prior to the pandemic. This translated to substantial investor interest in AI-enabled companies during the first half of fiscal 2021, which disproportionately benefited our portfolio.
This is in sharp juxtaposition to the escalating macroeconomic volatility observed over the second half of fiscal 2021. This was driven by the impact of China’s increasingly challenging regulatory environment, ongoing supply chain issues, and Russia’s invasion of Ukraine. Uncertainty has been perpetuated through three critical themes: fast-rising inflation impacting the economy, increasingly complex geopolitical risk, and a global energy shock, marked by surging energy prices across many markets. This context is challenging for the vast majority of public and private market investors, and SoftBank Group is not immune. Valuations have declined as our portfolio companies brace for what could be a period of sustained market uncertainty. Notwithstanding, SoftBank Vision Funds have cumulative gains of $28.8 billion*2 since inception as of March 31, 2022. There is also reassurance that as long-dated vehicles, SoftBank Vision Funds were specifically structured to traverse market cycles and support an unrivaled ecosystem that is diversified by geography, sector, and technology.
We retain our conviction that technology-driven disruption is a generational trend that will be felt for decades to come, and our portfolio bears out this thesis. Since inception, SoftBank Vision Fund 1 has invested $87.5 billion*2 in more than 90 companies. Fiscal 2021 saw 12 portfolio companies list on stock exchanges around the world, taking SoftBank Vision Fund 1’s total tally of publicly traded companies to 26. This is reflected in the growing maturity of the fund’s composition. As of March 31, 2022, 58% of SoftBank Vision Fund 1’s assets were in exited or publicly listed positions. This has enabled our capital markets team to continue to monetize these positions, and we have now distributed $38.7 billion to our LPs, a remarkable feat within five years of the fund’s launch.
SoftBank Vision Fund 2 has continued to make strong progress. With 208 new investments in fiscal 2021, SoftBank Vision Fund 2 now has more than 250 portfolio companies. At $56.0 billion in commitments, it is now the second largest technology fund in the world.
Our focus on making smaller investments, partnering at earlier stages, and ensuring geographic and sector diversification should serve shareholders well.
We also recently integrated SoftBank Latin America Funds into the SoftBank Investment Advisers platform. Launched in 2019, SoftBank Latin America Funds have deployed approximately $7.0 billion in over 100 companies across the region. Performance to date has been encouraging, returning a net blended IRR of 32%.*3
*1 PwC, “Global IPO Watch 2021”
*2 SBG consolidated basis
*3 Net Blended IRR reflects the combined net performance of different classes of securities in LatAm Funds structure, including Equity and Preferred Equity Interests, after taking into account management fees, performance fees, preferred equity coupon, operational expenses, organizational expenses, and other expenses borne by the Limited Partners. It is computed using the Limited Partners’ cash outflows (capital contributions) and inflows (distributions), net of investment-related financing, as well as the Net Asset Value as of March 31, 2022. It includes preferred equity coupon distributions and related accruals. This figure is the Net Blended IRR specific to SBG’s interests through SBLA, modified to reflect the additional impact of performance fee payments and related accruals from the perspective of the fund manager, as applicable.
An evolving global platform
These steps mark the evolution of our investment capabilities from a single investment vehicle to a global multi-fund platform.
SoftBank Investment Advisers was created five years ago to manage the first Vision Fund.
With the subsequent launch and expansion of SoftBank Vision Fund 2 and the integration of SoftBank Latin America Funds, our global capabilities have substantially expanded. Today, the platform oversees $175 billion in assets via a team of seasoned investment and functional experts working in 14 key geographies around the world.
Our efforts to build a strong local presence in key markets is paying off. Over fiscal 2021 we made our first investments in Israel, Japan, Saudi Arabia, Turkey, and the UAE. We continue to invest in human capital as well as developing talent within the firm, appointing six new managing partners over fiscal 2021, each of whom brings a wealth of global insights and expertise. We’ve strengthened our investing teams with 59 new hires, 46% of whom are women. I’m confident we have the right people and resources in place to ensure the firm’s continued success.
Founders across the world continue to be drawn to the power of SoftBank Group’s networks. Our portfolio ecosystem now comprises more than 450 companies, as well as Alibaba, Arm, and SoftBank Corp., which supports connections and the sharing of ideas to accelerate collective growth.
There was no precedent for SoftBank Vision Funds, and many doubted they could succeed. But with vision and discipline, we have proven that venture capital can successfully scale.
This trend has fueled an innovation supercycle among private technology companies and irreversibly changed the profile of growth equity as an asset class. Allocations from institutional investors to this segment has outstripped every other private asset class in the past decade. This has translated to a rapid upsurge in the number of unicorns around the world, now surpassing 1,000,*4 of which I’m pleased to share that 195 are already in our portfolio.
Of course, the current environment calls for prudence and discipline. As Masa has said previously, we must play defense as economic conditions dictate and be highly selective in our capital deployment. Our investment teams continue to be active, but the increasingly stringent performance criteria for the approval of new investments will naturally lead to a tapering in the rate of transactions. The depressed outlook for capital markets also means there are likely to be fewer new public listings in fiscal 2022 as companies prioritize strengthening unit economics in the face of continued uncertainty. As with the COVID-19 pandemic, we are working closely with our companies to help ensure they emerge stronger when market conditions improve.
Growth Equity is Today’s Preferred Asset Class
Significant growth in the number of unicorns
Global Unicorn Count
Growth equity outpace other asset classes
% Growth in Dry Powder. 2020 vs. 2010*5
*4 Statista, “Global Unicorn Herd Now Counts 1,000+ Companies,” April 2022
*5 Bain & Company, “Global Private Equity Report,” 2021
“SoftBank Group Report 2022” is available on July 27, 2022.
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