Message from External Board Director—SoftBank Group Report 2024

My connection with SBG goes back 23 to 24 years, when I first met Son-san (Masayoshi Son, Representative Director, Corporate Officer, Chairman and CEO of SBG). At that time, I had already founded DCM Ventures and was investing in technology companies across Japan, the U.S., and China. Back then, venture capitalists (VCs) typically focused on their domestic markets, operating in “silos” with U.S. VCs investing in the U.S. and Japanese VCs investing in Japan. I always felt that this silo mentality was somewhat limiting. So, whenever I exchanged ideas with Son-san, his global investment perspective truly resonated with me and aligned with my own thinking. Since joining SBG as an external director two years ago, I see my role as leveraging my Silicon Valley and global investment experience to enhance SBG’s corporate value, going beyond the typical responsibility of overseeing management decisions.

At the Board meetings, we thoroughly discuss various topics, including strategic matters. What I find particularly unique and excellent about SBG is that after each Board meeting, the directors always gather for an informal discussion that lasts two to three hours. In these sessions, we freely exchange opinions on a variety of topics, including Son-san’s vision, new projects, market perspectives, and more, sometimes engaging in heated debates. For me, these informal gatherings also play a meaningful part in the role of the Board at SBG because they allow us to delve deeper into the topics covered in the formal meetings. Son-san often comes up with surprising new ideas, but because we have discussed the underlying concepts in these informal settings, we can quickly see how his ideas fit into the overall strategy.

Another strength of our Board is the highly interactive discussions that arise from having members with diverse industry backgrounds. We all share the common understanding that the more diverse the board, the better. We are witnessing an unprecedented AI revolution that will impact people in all corners of the world in a more profound way than the industrial and mobile revolutions. Therefore, having a diverse range of skills and expertise to navigate this revolution is crucial and we can continue to do better.

In addition, developing a succession plan for the unique entrepreneur Son-san is a challenge. However, with the AI revolution unfolding very rapidly before us, this moment is crucial for SBG’s future growth. Usually, the larger a company gets, it becomes less agile and flexible. This is why small nimble start-ups can sometimes become giant-killers. Son-san has proven over the years that he can continue to lead SBG, a very large organization, and at the same time, be nimble. Therefore, what we need most right now is the swift decision-making of Son-san, the founder, and the agile and flexible actions of SBG as an organization. Finding a successor is not easy, and while we understand the necessity of a succession plan, at this pivotal moment, I believe our higher priority is to attract great talent and ensure sustainable growth around the nimble founder who is also the soul of the company.

In Board discussions, I often share my views on technology trends. Additionally, given my experience as both an entrepreneur and a venture capitalist, I frequently emphasize the need for patience. The nature of venture investing varies significantly from early to middle to late stages. When I first joined, I was struck by the view held by some, that the majority of the investments would do reasonably well. This expectation, along with the tendency to seek quick results, needed to be addressed. In the venture world, start-ups that go out of business appear earlier in the investment cycle. In contrast, companies that do well in the long run take time to mature and the winners are not obvious for many years. In baseball terminologies, there are strikeouts and hits, and occasionally, a grand slam home run like Alibaba, which took 15 years since the company was founded to IPO. In venture investing, we need to understand this and be patient as an organization over the long term.

In general, venture capital return follows a J-curve, where the IRR is negative for the first three or four years. Some of SoftBank Vision Funds’ investments have shown early positive results, making it difficult to see the typical J-curve pattern. However, it takes a long time for the upward trend of a J-curve to emerge. SBG is investing in promising companies, and I believe we will eventually see some home runs. It is crucial to communicate to external stakeholders that this process takes time. We need to be patient and continue to support our portfolio companies from within. Ultimately, I believe the track record of the hundreds of companies we have invested in will reveal winning trends and help highlight the key companies and areas to focus on. I hope that we can learn a lot, not only from the successes but also from the failures, embracing new challenges and turning them into successes.

Looking ahead at the VC market, my sense is that the industry, aside from AI, is about a year away from bottoming out. About 12 to 18 months ago, when fundraising was difficult and the market was sluggish, many existing investors made additional investments in the form of bridge loans or rounds that propped up the valuations. The industry standard at that time was to provide one more round of funding that would allow companies to survive one to two years longer and see what happens. Therefore, in the next 12 to 18 months, there will be a clear distinction between companies that can survive and those that cannot. In any case, once the market goes down, it would take three to four years to recover, as we saw with the dot-com bubble.

On the other hand, AI companies with strong teams continue to attract funding and maintain their valuations. Still, over the next two years or so, we will likely see a clearer division within the AI sector, with some areas experiencing growth and others not. This period will be crucial for selecting companies with promising business models for growth.

I think that Son-san and SBG, which he founded, are exceptional in their ability to boldly transform with the times and “reinvent” themselves to deliver results in new fields. Starting as a software wholesaler, then moving into PCs, the Internet, mobile, and now AI, they have repeatedly created new businesses in entirely different fields. I have worked with many successful technology CEOs and corporations globally, but Son-san and his team’s ability to continuously reinvent is rare. It is challenging enough to venture into new businesses and achieve results, but Son-san has successfully and positively reinvented SBG multiple times. The recent IPO of Arm is another example. Within SBG, there is a culture of constantly embracing new challenges. Even though the future is uncertain, Son-san and SBG are full of enthusiasm to create new businesses and contribute to society.

AI is now broadly categorized into machine learning and generative AI. SBG has been involved in AI for the past six to seven years, closely following the evolution of machine learning. This has allowed us to quickly adapt to the emergence of generative AI without missing the timing. This perfectly exemplifies the saying: “Chance favors the prepared mind.”

Looking back on the technology revolution to date, there have been four waves: Computer (mainframes, server-client and PCs), the Internet, Mobile, and now AI. While PCs are now affordable for personal use, the development of the PC market was initially driven by B2B, while the growth and proliferation of the Internet and mobile were propelled by B2C. So how will the fourth wave, AI, unfold? Like the computer revolution, I envision AI initially creating added value in the B2B sector and then making a significant leap forward from there. In this regard, Son-san’s experience with the computer revolution, where technology growth was initially centered on B2B, will be a tremendous advantage in capturing future growth opportunities.

We are already seeing six or seven companies emerging as likely core players in the future AI space, and the next-generation AI ecosystem is being built around them. Arm is one of these core players. Arm has always fortified itself by creating an ecosystem, expanding into areas such as mobile, automotive, and servers. This ecosystem business model is embedded in Arm’s DNA and will help them maintain its competitive advantage to fuel their growth. With Arm, which provides foundational AI technologies, I believe SBG is well-positioned to capture future growth opportunities and lead in the AI era.