The Cover Story Marcelo Claure

- I'm Ed Hammond with Bloomberg News, and thank you so much Marcelo Claure of SoftBank for joining me for this "Bloomberg Businessweek" Conference. Marcelo, you're a man of several hats. Every time I talk to you, you seem to be very, very involved in a lot of different things across different companies at different stages of their development. What is taking up most of your time right now?

- Combination, first is we're living potentially in some of the most exciting times as it relates to tech disruption and equity investing, or growth equity investing. So at the speed that SoftBank is investing, you know, we always have a lot of different things going on. Also, WeWork is an important part. I took over WeWork, it's gonna be close to 1 1/2 years. So we've been undergoing a massive transformation at WeWork, and the launch of our Latin American Fund, who, you know, I always had the hypothesis that it was gonna be Latin American's time, so we've been doing a bit of that, launching the Miami Initiative, which is, I think Miami's on fire, and like anything else, it requires capital, it requires support. So I've been spending some time in Miami, and then we have a lot of different investing company, a lot of operating companies. We have satellite companies, we have energy businesses, we have robotics businesses, and also you got to add that we're investing about a billion dollars a week in eco at SoftBank. So yeah, there's always exciting things going on in the field that we operate.

- Let's just start with SoftBank. Results have obviously just come out from the company, somewhat disappointing for investors who had, I guess, expected more buybacks. But talk to me longer term. What are the opportunities that you guys are seeing in the market? We know you had a fantastic pandemic. SoftBank invested very well, very early in the pandemic and saw huge returns because of that. Now, as we shift into what appears to be this sort of next chapter of returning to normal, I wonder where you see the ability to capture that same kind of growth.

- And first is, you know, I think SoftBank results were our best results so far. They were the best results that any Japanese company has ever posted, $47 billion in profit, which I think it's exceptional. I mean, nothing has really changed. We've been saying the same thing for the last three years. We've been saying that we're in the middle of undergoing probably one of the most important revolutions in human, mankind. You're starting to see that pretty much every single industry vertical as we know it is gonna be different five years from now. It's gonna be massively disrupted. So we're looking for those companies that are the innovators, the disruptors, the ones that are changing industries, and those that are basically, I would say, redefining the way we live, the way we work, the way we play. And when you invest in those companies, you really don't care about short-term results, right? We're not one of those companies that are looking, hey, is this, can we buy something cheap that we can two X in a year, or two? That's not our style. Our style is we're gonna invest in those disruptors that those companies are gonna be worth 10 times, 100 times in the next five to 10 years. So that's always been the way we invest, and you know, so far it's proven right. I take you back through memory lane, you know, a year, year and a half ago, everybody was doubting. SoftBank was doubting the Vision Fund, and God, what a difference a year has made. I mean, I think the combined IRR of the Vision Fund is, I think, at 43, 44%. The IRR for the Latin American Fund is 62%, and so far the theory behind it, or the way we're investing is proving right.

- Talk to me about the LATAM business, 'cause obviously that's a place close to your heart, and an area where I know you're very focused in terms of the future of investment. What are the opportunities there, and how does it sort of relate to what SoftBank is doing elsewhere in the world, and the kind of markets it's wanting to go into?

- So I like to look at LATAM first, and say the size, right? Latin America's GDP is two times the size of India. It's two times the size of Southeast Asia, and it's only half of China. So therefore Latin America has the size. Secondly, Latin America is behind in some, call it, tech indicators, you know, say maybe, I would say like five years from China. So it's nice to invest in a place where you've seen a lot of these business models already been successful in India, in China, in the US. So you know, we had a plan, and we had a 5 billion fund that was supposed to be, it was gonna take five years to deploy it. Pretty much the 5 billion is fully committed. The IRR so far is 62%. We're investing in all sort of companies from infrastructure to logistics to health tech to prop tech to irrigation pretty much. And there's so much disruption happening in Latin America that, you know, we think that quality of the entrepreneurs and their potential is very large. So we've been spending a lot of time in basically looking at these Latin American entrepreneurs who are similar business models to others, and you know, I mean, so far, so good.

- When you're deploying that kind of capital, and as you said, that very high rate of return, surely there's a call to invest more. Is this something we're gonna see happen? Are you gonna grow that fund?

- We think that there is great opportunities ahead in Latin America. So you know, we don't have a mandate in the group that says we got to deploy this much capital in any region in the world. What we do is we look at exceptional entrepreneurs, exceptional founders that are disrupting parts of the economy that are quite large, and in Latin America, you're seeing a lot of FinTech disruption, I mean, because credit has been so scarce to the traditional consumer, I mean, to get a home, sometimes you got to put 30, 40% down payment, which makes it very hard for the middle-class to actually own a home. When you look at the largest cities in Latin America, the amount of real estate ratio compared to mortgages is so large, they're pretty much very, very few real estate assets that are being financed. I mean, there's a lot of things that are broken in Latin America that technology is fixing. So therefore when you have that size, first is we needed to go learn. So we've been doing this for two years, and you know, we're gonna continue to invest in Latin America, as we're gonna continue to invest in the US, in China, and India. We've be doing a lot of investments in Europe, lately. You know, Masa announced a couple of investment, European investments, in the last earnings call, so you know, we're a global investor, and we're gonna bet behind great entrepreneurs, regardless of what part of the world they're in.

- Let me just ask, Marcelo, as a sort of practical matter when you're deploying that kind of capital, and you're talking about over the past two years obviously spending a lot in Latin America with those kind of growth prospects in mind, when you do that with the overlay of the pandemic, and therefore with the kind of companies that have benefited, the kind of technologies that has, you know, they may go on to succeed anyway, but it sort of supercharged them. I wonder how you look through an individual event like the pandemic, and say these are the things we want to invest in that in five years, 10 years, 15 years are gonna continue to have that growth, rather than just be the ones for the next whatever it is, year, 18 months, two years of the pandemic are able to harness the potential.

- I mean, all the pandemic has done, it has accelerated something that was gonna happen in the next three to five years, right? I always like to remind ourselves that the internet mainly disrupted two industries, right? The internet disrupted advertising. You have Facebook, you have Google, and the internet disrupted retail. You had the emergence of e-commerce. But really nothing else was massively disrupted, right? We still ate the same way. We still shopped the same way for food. And the pandemic, it forced us to basically digitalize pretty much everything that we do, right? So the pandemic digitalized e-commerce a lot more. I mean, today you get your food delivered to your home. You get your groceries delivered to your home. You get the, you know, your late night ice cream delivered to your home in less than 20 minutes. You know, pretty much everything you've learned how to order online. You know, can you really go back? Can you go back to retail store, and walk in, and see if they have your size, and be waiting? No, I mean, you've learned how to shop on Amazon today for your clothes, or wherever you shop, and it really works. Could you go back to not ordering food? I mean, I think it's hard. I think most families today have learned that just go to an app, and you can order your food. Can you go back to a doctor? I mean, just it's painful, and you went to a doctor, you waited a couple of hours. I mean, today you have a telehealth appointment, doctor shows up on time, which is nice, and you're able to figure out what's wrong, and they're able to prescribe you here in that exact same way. Media, I mean, for the people who've tried TikTok, can you get away from TikTok? Absolutely not, I mean, I see people who now, you know, are consuming 90 minutes a day of their media via TikTok. Those things are never gonna change. Those things are just gonna continue to grow, because they're solving a real problem. So I think what the pandemic has done, it has massively accelerated those trends that were gonna happen anyway, but now they have happened faster, and consumers are enjoying it. Consumers have figured out, hey, it's not worth it to go to the supermarket and spend an hour when you can go to Instacart, put in your shopping list, and somebody will deliver those goods at home, and so on. I mean, I can go back to pretty much every single example. So what the pandemic has done, it has enhanced your productivity tremendously. You live a more convenient lifestyle. So I think overall, these are trends that are here to stay, and are gonna continue to grow.

- And another thing the pandemic has obviously done is changed the way we work in a pronounced way temporarily, and there's talk that longer term there will be a shift in the working model, particularly in the way people interact with their offices. I wonder, with that in mind, why now is the right moment to monetize an asset like WeWork, which is sort of so dependent on people actually wanting to go into a physical office space, rather than working from home.

- So WeWork, I think this is WeWork's time, because the value proposition of WeWork has always been flexibility, and what the world is looking now is for a flexible workspace. There are so many different ways in which people are gonna work, but what we're hearing from people is, first of all, employees wanna go back to the office, right? Nine out of 10 employees say, "I wanna go back to the office." They don't wanna go back the same way. They don't wanna go back to one headquarters, and be there nine to five. Some say, "We wanna be there three days a week." Some say they wanna be two days a week. Some say four days a week. Some says, "I don't wanna drive to headquarters. "I wanna work close to home." So there's gonna be so many different business models, but what I do know is that companies are not looking forward to going back to the traditional way of signing a 20-year lease, and setting up this non-flexible headquarters. That's dead, the office is very different today. You know, the biggest, or most of our larger customers are the world's most valuable companies, who basically are sending us their employees because they don't know, you know, how many days they are gonna be working, because they don't know where their business is gonna grow. And when you're sitting in the only company in the world that has over 1,000 buildings in pretty much most important cities around the world, the demand for WeWork space today is higher than it was prior to the pandemic. So what the pandemic allowed WeWork, it allowed to reinvent itself. It allowed to learn to how operate on a most cost flexible basis. And now, you have a WeWork that, like I said before, you know, WeWork should be a profitable company by the end of this year, or by the beginning of next year as latest, and demand for this type of flexible office space is higher than ever, and I think the world is gonna redefine in terms of where flexibility becomes the most important part that a company can offer its employees.

- I got to go there with the crypto question. Obviously, WeWork last month announced that it would be accepting payment in the form of cryptocurrencies, notably Bitcoin. It also said it would hold some on its balance sheet. Today, we saw Elon Musk come out and say Tesla would no longer be taking Bitcoin, over concerns about the impact it has on the environment. Obviously, the environmental impact of mining Bitcoin has gone up significantly over the past few months. Is that the right move? Is that something we're likely to see WeWork follow, or is that just a sort of reaction to a short-term trend?

- No, I mean, the reason why we decided to accept cryptocurrencies was because our customers were asking for it. You know, one of the things that we do with Sandeep is we listen to our customers a lot, and we have to, right? They tell us the type of office they are looking, they tell us the type of setups that they want, and the crypto word came out a lot, where employees say, you know, "We would like to pay you in crypto. "We have accumulated a significant amount of wealth "in crypto that we would like to use it to pay for rent," as rent becomes an important part of many companies. So we decided to basically accept crypto, and at the same time, you know, as people pay us in crypto, to us, it's just another currency. It's like we're holding too, we have US dollars, we've got euros, we've got pounds, we've got crypto, we've got Japanese yens, we've got it. So to us, it makes no difference, and when our customers ask for reimbursement in crypto, we pay in crypto, and we have, you know, we've had some of our customers who are paying us in cryptocurrencies, and we have some landlords who said, "Look, I would like you to pay me in cryptocurrency." So you know, the way WeWork looks at it, you know, we're gonna listen to what our customers want from us, and if they demand it, that they wanted to pay in crypto, that's why we do crypto as a form of payment.

- Do you have a level that you'd be comfortable going to, in terms of your sort of total money going in and out in the form of crypto?

- I mean, today, it's a very small part of our business, and I think it's the beginning. I think crypto is a mega-trend. I think crypto cannot be ignored, and you know, it's gonna grow according to whatever our customers want. If our customers wanna pay in crypto more, you know, we're gonna accept crypto. If the customers wanna pay on traditional currency, we're gonna accept form of payment as traditional currency. So to us, this was nothing more than a move to basically help our customer satisfy some of their needs that our customers were asking for. Obviously, our first customer, and the large one, was Coinbase. Not a lot of people know, but you know, the headquarters and most of the real estate that Coinbase uses is WeWork, and being them the largest exchange of cryptocurrency, they, you know, they had, they were the first customer to pay us in cryptocurrency.

- They pay you purely in cryptocurrency?

- I think it's a combination, combination, I mean, I don't know exactly, but they were the first customer that actually wanted to pay in crypto.

- Now, inevitably, SoftBank is one of these companies because it's so big, and because it has such a strong track record that it is constantly attracting intrigue around the characters. Masa Son has proved himself to be a highly successful investor through good times, through bad times, obviously through this recent pandemic. In terms of key man risk, who's the right person to take over should he step down? There's obviously yourself, and Rajeev Misra sort of both fairly close to the top of the organization.

- You know, I mean, that's a subject that only Masa knows the answer. I mean, Masa is incredibly active. Masa is a hands-on manager. Masa meets with every single one of the entrepreneurs that we invest, and we hold, you know, daily meetings with Masa in which, you know, we're always trying to figure out how we can make our entrepreneurs work together, how they can leverage the ecosystem, and we're close of, I would say, 240 of the biggest disruptors sit within the SoftBank ecosystem. So it's fascinating to see our entrepreneurs, our founders engage with each other, help each other, and Masa is incredibly active in that. So that answer only Masa knows, and he hasn't shared it with anybody.

- And when I think of the sort of the different characters inside, you know, Mr. Misra is often cast as the sort of soft, cuddly side of it, you know, the friendly face of SoftBank investing. You're more the operations guy. Obviously, you fixed the T-Mobile situation. You are now fixing the WeWork situation. Is that a fair characterization of the two of you, and the roles that you fill within the organization?

- I mean, I think there's so much to do in SoftBank that we all divide and conquer, right? Any time there's a big issue with a company, you know, I'm usually the one that gets sent to, gets sent there. I had a personal attachment to Latin America, so that's why we launched the 5 billion Latin American Fund. I would say that the Vision Fund, Masa is an incredible, active, hands-on manager, and him and Rajeev partnered quite well. So we as a team, you know, we figure out what needs to get done, and I think we're very complementary, you know, we all have complimentary skillsets. I think Masa sets very clearly the strategy. Masa sets the vision. Masa sets where we wanna go. Rajeev is the financier of the group. You know, he is highly involved in capital location, and I'm the operator in the group. So between all of us, we all help each other to make sure that SoftBank continues to be as successful as it's been, and SoftBank is one that is continuously, you know, reinventing itself. If you see what we've done, we've gone from a telco with a lot of different operating businesses we've gone last year through. We've cleaned up our balance sheet. We sold a lot of businesses. We did a pretty large buyback, and Masa has said it very clear, that we wanna be an investing company that is investing in companies that are gonna transform the way we live. So you know, I was in charge of selling most of our companies, or monetizing our assets. Now that that's done, now we're, you know, say we're 90% an investing company, and you know, once investors, some businesses are gonna require us to get more involved, and some others that don't, and that's the way we run the company.

- Where does T-Mobile fit into that ecosystem? Obviously, again, you were sort of instrumental in bringing that merger together, but then working out what the SoftBank role was gonna be. I wonder, is that a company you see SoftBank being in long-term, or does it not match the growth prospects that you would want for the fund?

- We remain a large shareholder of T-Mobile. We did a large monetization last year. If I'm not mistaken, it was the second largest monetization ever done in the financial markets. That basically, that was money that we brought in, so we invested into high-tech companies, or tech growth companies, and we still remain quite a large shareholder of T-Mobile, and we work, you know, synergy side particularly, work together to figure out how can our companies work together as T-Mobile develops its amazing 5G nationwide coverage. A lot of companies are gonna be dependent on that, on quality of the network that T-Mobile is building, and we're finding ways to work together. I mean, autonomous vehicle are the next big thing that's coming, and you know, a 5G, or a 6G network is gonna play a key role on a lot of that. So a lot of these companies require an amazing network to process the amount of data that's being processed in order to generate the insights. So team work's a big part of the equation, and T-Mobile is doing great.

- And obviously, another area of your focus, and you and I have talked about this previously, but it seems to just grow and grow, is Miami, which is of all the cities certainly on the East Coast of America that I can think of has done best during the pandemic, in terms of attracting all kinds of different people, all kinds of different businesses, and just seems to be riding on the crest of a wave. What are you doing down there at the moment? Talk to us about this $100 million you're investing in tech startups, and how that's going.

- So Miami's close to us, right, and Miami's very close to me. That's where I started my first company, Brightstar. That's where we're investing in the in the largest last mile distribution company called REEF, all the different part also we have there. And what happened with the pandemic is when people were given a choice of they could work from anywhere, then suddenly people went to Miami, and they realized that Miami has a quality of life that's very hard for any other city to match, and if you add to the fact that there are no income taxes in Miami, suddenly you started to build an ecosystem from hedge funds, venture capitalists, private equity, startups, and it was the perfect situation where you found a politician, Mayor Suarez, who actually welcomed tech, which was a welcome investment, all the quite basic things, and you had adverse politicians in the West Coast. So that basically caused the perfect reason to have a lot of people moving to Miami, and like anything, like any, you know, any tech hub that's in formation, you need capital. So we found a great opportunity for SoftBank to commit a certain amount of capital. You need talent, and suddenly you have a tremendous amount of inflow of talent going to Miami, and you combine that together, and you suddenly start companies, you start seeing companies being built. So right now, Miami is experiencing a boom. I mean, I was looking at the numbers of venture investment. There was close to $2 billion last year. That's significantly higher, something like six X what was happening the last previous years. Suddenly you have a lot of funds that are there. We're there, Founders Fund is there, Atomico is there, Pareto, and so on. So suddenly a lot of things starts happening. You have unicorns. There's nine unicorns that are there, so you have new category entrants. So suddenly the place feels, it has an incredible feel, like, you know, what Silicon Valley used to have a few years that somehow got lost. So the, you know-

- Right, I believe, and Thoma Bravo, one of the big Silicon Valley players, are setting up there right now, right?

- Yeah, I mean, pretty much I would say that if you're not setting up there now, you have a presence in Miami, and it also helps, you know, Latin America is, there's a lot of business to be done in Latin America. It becomes the gateway of the Americas, great place to live, good weather, no taxes. I mean, it's like all stars have gotten aligned for Miami, and you know, I will give it a lot of credit to Mayor Suarez, who's basically opened the doors, and is a forward-thinker that is actually welcoming all these companies, who traditionally, you know, tech, very different than other companies, are not those that look for big economic incentives to move, and all those things, you know? Tech just wants a place where there's talent, people are treated well, and nobody's asking for any tax incentives, or economic incentives. So we're there to invest. We're there to foster the new companies are being formed. So pretty exciting times for Miami.

- Marcelo, fascinating conversation. Great to have you on. Great to have you joining us, and hopefully next time, we'll have you here in-person.

- Great, let's do it next time in-person. Thank you.

- Thank you.