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Saturday, January 23, 2021

SoftBank Vision Fund CEO Speaks At Goldman Tech Conference: Key Highlights

In recent months, Japan’s financial conglomerate-cum-VC giant, SoftBank, has repeatedly made the news, starting with its terrible investment in WeWork (and several other not defunct unicorns), proceeding through its penchant for repurchasing gobs of its own stock any time its share price drops, continuing through SoftBank’s infamous – and very expensive – attempt to corner tech stock gamma in the public markets, yet culminating with a stock price which is now at all time highs, wildly surpassing its previous dot com record (from which it plunged at barely recovered).

With this “fascinating” background, one can see why any representative of Masa Son’s very “eclectic” SoftBank would be highly sought after for their thoughts on the market (and how to manipulate it best), which is probably why Rajeev Misra, EVP of SoftBank Group and CEO of the SoftBank Vision Fund (and a former Deutsche Banker of course – SoftBank has quickly emerged as the company where all the financial professionals who blew up the “real deal” DB with their financial genius ended up) was such a highlight when he presented at the Goldman Technology and Internet Conference 2021 this week.

Below, courtesy of Goldman, are the main highlights from his speech:

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View on the market. Misra noted that low interest rates and asset-buying by central banks have significantly improved market liquidity, justifying much of the valuation support for the public equity markets, and driving higher relative valuations compared to the private markets. He believes the SPAC, while not a new concept, has been a way for companies to take advantage of this and get access to the public markets more quickly, though it’s a smaller component to the broader public equity story today than interest rates and central banks.

Investment landscape. Misra highlighted that the last 12-months have dramatically changed the landscape, with many of the changes in consumer behavior unlikely to go back to normal. The pace of disruption has covered three years of ground in just one year, and eCommerce in particular has seen as much penetration growth in the last 9 months as it saw in the prior 10 years. Verticals like education, food delivery, eCommerce, life sciences, and entertainment have been key beneficiaries.

When thinking about the future of a post-COVID world, Misra pointed to China and South Korea, both of which are operating 6-9 months ahead of much of the rest of the world in terms of COVID suppression, noting that there have been aggressive hiring and investment cycles by companies benefiting from online shifts, something that highlights the sustainability of shifting consumer behavior. In addition, even in verticals negatively impacted by the pandemic, like ridehailing, technology-enabled companies are gaining share in a post-COVID world. Mr. Misra noted that for Didi, a Chinese ridehailing company, rides-per-day today are higher than last year, despite total market-wide rides only being at ~70% of pre-COVID levels in China.  

Fund management strategy. SoftBank Vision Fund has over 100 investments, 85 of which are in Vision Fund 1 and 25 of which are in Vision Fund 2. Misra highlighted that despite SoftBank being the largest shareholder in 95% of its portfolio companies, the company has been more open over the last year to outside investors supporting follow-on fundraising rounds which helps to validate the valuation levels of these businesses. For Softbank’s portfolio companies, catalyzing business opportunities across Softbank’s ecosystem, whether that be creating business relationships or expanding geographical opportunities, is a large part of the vision. The company facilitates both debt and equity funding, including asset securitization.

Specific investment verticals. While SoftBank portfolio companies operate in a number of verticals and geographies, Misra discussed in particular SoftBank’s focus on mobility, real estate technology, and healthcare technology, with capital deployments made with a longer-term investment trajectory. In mobility, Misra highlighted the opportunity for autonomous vehicles to dramatically lower costs for transport of goods and people, something he expects will take 3-4 years to come to market. Even prior to that, however, he expects the phasing-out of car ownership to provide meaningful tailwinds to core rides in the category, creating meaningful operating leverage for ridehailing businesses as they rationalize costs (e.g., Uber with ATG, freight).  

In real estate, Misra noted that there are meaningful opportunities in real estate, both residential and commercial, given the size of the asset class and level of technological disruption to date. He noted that the residential and commercial office categories were the nearest term opportunities, with hospitality and retail being further out. In healthcare technology, Misra discussed the meaningful changes expected throughout the value chain, from diagnostics to treatment and even areas like gene editing and cell therapies, the latter which he expects will take 5-6 years but is among the most exciting opportunities. With healthcare the number one component of U.S. GDP, he reiterated the focus on companies best positioned to disrupt large asset classes.

Zerohedge

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