Nikkei Asia -Specialexcerpt from May 31-June6,2021 Printedition. NikkeiInc.Noreproduction without permission. THE BIGSTORY SoftBank Group ChairmanandCEO online press conference on May12. Masayoshi Sonspeaks duringan

Courtesy of SoftBank Group As demandsurged forthoseadjacentbusinesses more services:grocery deliveryandfooddelivery. cash infusionenabledCoupang tolaunchtwo $2 billionintoCoupanginlate 2018.Thesecond he hadtheinvestmentvehicle injectanother nearly $100billionSoftbankVision Fundin2017, profit fell,according toitsfinancialstatements. tripled from theprevious yearevenwhilegross across thecountry. Thatyear, Coupang’srevenue Coupang beganbuildingoutlogisticscentersall funding record atthetime. into thecompany, shattering thecountry’sstartup 2015, SoftBankmadeitsmove:Itinjected$1billion according toapersoninvolved in thedeal.InJune cash flow, Coupanghadgooduserexperience, its rivals,andfoundthatwhileothershadbetter Seoul hadconductedananalysisofCoupangand Son’s SoftBankGroup. Hisinvestmentteamin heavy model. in publicmarketsmightbalkattheinvestment- of dollars.Ifthecompanywere tolist,investors need lotsofmoney--likelytothetunebillions network. Theproblem wasthatCoupangwould even furtherbybuildinganexclusivedelivery to an Amazonlike model,whichhecouldpush taking itpublic. e-commerce siteonhishands,andwasconsidering at acrossroads. Healready hadafast-growing Korea’s largest e-commerce company, hewas would eventuallybecomeCoupang,South out ofHarvard BusinessSchooltolaunchwhat A fewyearsafterBomSukKimdropped TOKYO But thatdidnotstopSon.Having setupthe Backed byanunprecedented amountofcash, That wastheperfectbackdrop forMasayoshi Kim hadbigambitions:topivotthecompany THE BIG STORY

during the COVID-19 pandemic, Coupang known investment in Alibaba Group Holding -- an Listing sideways SoftBank to buy into competitors and become a dragged all corners of the industry into a brutal initial $20 million injection that eventually grew Various listed, high-profile SoftBank companies have seen revenues multiply -- while kingmaker if a wave of consolidation arrives. competition. to a stake worth over $100 billion -- was a one-hit profits remain in the red. (In billions of dollars) Those factors are casting a shadow over Son’s The bet on Coupang now appears to be paying wonder. In fact, Coupang’s IPO was the largest by a Revenue ambitions of creating an army of entrepreneurs off, at least for SoftBank. Despite recording a foreign company in the U.S. since Alibaba in 2014. that will join forces to lead what he calls the whopping $475 million loss in In a recent interview with Uber “information revolution.” 2020, the delivery company’s Nikkei, Son said his focus was Technologies Coupang DoorDash Grab “There were many investment failures, such (Listed in (March 2021) (December (Targeted New York Stock Exchange initial “completely narrowed down” May 2019) 2020) listing in 2021) as WeWork, Greensill and Katerra,” Son said. public offering in March gave it on making hundreds of new bets 15 “But what I regret more is the missed an opening market capitalization on unicorns. His recent pledge to opportunities to invest.” of over $100 billion -- more than double down on the Vision Fund 10 10 times the price tag of the Vision will test whether investors are FARSIGHTED OR MYOPIC? Launched four Fund’s 2018 investment. That gave finally convinced about his bullish 5 years ago, the Vision Fund, created by Son to the fund massive on-paper gains, outlook on tech. fuel a shift from telecommunications to tech 0 helping SoftBank recently report Coupled with these successes 2018 ‘20 ‘18 ‘20 ‘18 ‘20 ‘18 ‘20 investment, now spans two funds and more than its biggest-ever annual net profit are notable failures, like Greensill $130 billion in combined assets, including capital Net income of $46 billion. AFP/Jiji Capital, the financial services committed but not yet invested. From its offices 5 With blockbuster listings of his company that collapsed in across London, Silicon Valley, Mumbai and other risky bets on Asia, Son has defied Lex Greensill, founder of March, and WeWork, the hybrid locations, members of its 26 investment teams hunt 0 critics who have said that his Greensill Capital, one of workspace startup whose IPO for startups around the world. Negotiations over SoftBank’s notable failures. aggressive gambles on cash-burning fell apart in 2019, which have –5 potential investments eventually lead to a meeting startups would not be embraced by raised questions about SoftBank’s with Son, now mostly held over Zoom. It can take public market investors. Ahead, a growth-at-all-costs strategy. –10 less than an hour for him to decide to invest billions. slew of potentially lucrative initial public offerings Meanwhile, the pandemic has created turmoil in 2018 ‘20 ‘18 ‘20 ‘18 ‘20 ‘18 ‘20 “Barely 5% of the companies are profitable is slated for 2021. At the moment, it is hard to markets, and the outlook for tech stocks remains when we invest,” Son told Nikkei. “Ninety-five Source: S&P Capital IQ, Grab argue, as Son’s detractors have, that his most well- highly unpredictable. A plunge in investor percent of companies are lossmaking, and the loss continues to increase. We invest in these companies at huge valuations. You need courage.” confidence during the early days of the COVID-19 “Usually, it is difficult to make investment pandemic last year prompted SoftBank to sell decisions based on the so-called traditional more than $50 billion in assets, and the same financial institution way of thinking,” he said. pessimism could return. “One of the reasons we can do it is that we The bigger question, however, may be understand the background of technology.” whether the aggressive growth strategy fueled Son appears comfortable with the risk of by SoftBank can eventually lead to profitability. Coupang’s investments helped boost its market SoftBank invested in share in South Korea’s e-commerce market, but Tokopedia in 2014, back competition has remained intense. Startups and when the Indonesian major conglomerates are foraying into Korean startup had yet to e-commerce, including Amazon, which partnered make a profit. with a local e-commerce operator. Coupang has vowed to boost its logistics capabilities by another 50% over the next year. Despite SoftBank’s mammoth pool of capital, Son has also acknowledged that he has been missing out on some of the most competitive deals in the startup industry. Rival investors that Coupang’s initial public won the deals have also reaped massive returns offering was the biggest by a foreign company during the pandemic era’s tech stock rally, and in the U.S. since Alibaba are increasingly reinvesting that money to back

Group Holding’s in 2014. Yonhap/Kyodo SoftBank competitors. That makes it difficult for Group Courtesy of GoTo

Nikkei Asia - Special excerpt from May 31-June 6, 2021 Print edition. Nikkei Inc. No reproduction without permission. THE BIG STORY

both success and stunning failure. Alibaba was Now that Tokopedia is merging lossmaking when he first invested, he pointed with Gojek, the next step looks to be going public. out. “We use our imagination. If [the company] uses artificial intelligence in this way and gets customers, it should work. If it makes one mistake, going public in the U.S. A few months later, it will fall into the abyss.” WeWork pulled the plug on its IPO after fetching In fact, the seeds of those multibillion-dollar bets a $47 billion valuation. Concerns over whether were planted years before the Vision Fund. Shortly its other portfolio companies could survive before its 2015 gambled on Coupang, SoftBank the COVID-19 pandemic triggered a sell-off co-led a $100 million investment in Tokopedia, in SoftBank’s own shares, prompting Son to an online shopping site in Indonesia. It also lined announce a massive asset sale and share buyback. up bets into Asia’s nascent ride-hailing industry, “We overestimated, or were overconfident, pouring $250 million in Grab Taxi in Southeast about the founder, Adam [Neumann],” Son Asia and leading a $600 million funding round for recalled of his bet on WeWork. Uber’s shares Kuaidi Dache in China. “sold for higher than what we paid for, but the Those companies were later turbocharged with stock price slumped after the listing.” billions of dollars from the Vision Fund. Before Group Courtesy of GoTo SoftBank also valued its entire investment it entered the scene in 2017, the landscape was portfolio “very conservatively,” Son added, dominated by two broad types of investors. Big “because [companies] might fall into the private equity funds would buy companies with the right business model,” said Oliver Matthew, Scale, however, made a difference. The company coronavirus valley.” a stable cash flow, improve their profit margins an analyst at CLSA. “Some of these investments began to expand rapidly with SoftBank’s 2014 SoftBank’s $1.5 billion bet on Greensill Capital, and sell them, distributing the profits between will fail, and they accept that. But the overall investment, but the Vision Fund’s turbocharging which pitched a “technology-driven approach” to themselves and the fund investors. Investors in level of disruption you can bring through these took it to another level. Tokopedia observed supply chain finance, also soured. Its technology startups, known as venture capital, generally gave kinds of companies should offset a minority of that it was attracting 60 million to 80 million was supposed to enable it to provide short-term small amounts of capital to many companies in investments which fail.” consumers, but many were not actively making financing to companies traditionally deemed hopes that a few will become wildly successful. Take the case of Tokopedia. Led by William purchases. Instead of waiting for income levels to risky, but in reality, a chunk of Greensill’s loans The first Vision Fund, which raised more than Tanuwijaya, a former part-time worker at an rise, it decided to lower the bar as far as possible went to other Vision Fund portfolio companies. $98 billion, was a unique combination of the two. internet cafe, it generated virtually no revenue for for making an online transaction. Pursuing what Greensill collapsed after its main insurer did not It invested in the scale of the biggest private equity the first few years. Indonesia’s poor infrastructure it called an “infrastructure as a service” business renew its insurance policy. funds, but targeted fast-growing tech companies meant the economics of making profits by model, it started building out a dazzling array “I think the business model of the company Son’s colorful analogy with as-yet-unproven business models. delivering goods across the archipelago were of transaction services: utility bills, train tickets, is wonderful. I still think so ... but there were of the “golden eggs” “You are buying time for the company to prove highly unfavorable. groceries and lending, among others. excessive loans made to certain companies,” he hopes to fund amid “The core vision has been clear: How do we which led to a collapse in confidence, Son said. the AI revolution. bring more of the Indonesian consumer wallet online?” said Lydia Jett, a partner at the Vision A golden year Fund who sits on the board of Tokopedia, 2021 is a year of potentially lucrative exits for Masayoshi Son, as Vision Fund companies go public at a faster rate than ever before. Coupang and others. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Such an all-out expansion requires burning cash for years, and was too risky for most investors. But 2017 ZhongAn Online P&C Insurance Son convinced the sovereign wealth funds of Saudi 2018 Ping An Good Doctor Guardant Health Arabia and Abu Dhabi to join the Vision Fund 2019 Slack Technologies Vir Biotechnology by offering them a 7% annual coupon for half of Uber Technologies 10x Genomics OneConnect the money they put in, as well as committing 2020 Relay Therapeutics Seer $33 billion of SoftBank’s own capital. That exposed Ke Holdings DoorDash SoftBank to a large risk in the beginning -- it had Opendoor Technologies* to pay billions of dollars before it was able to start 2021 cashing out -- but gave it the opportunity to profit Qualtrics AUTO1 View* Compass Grab* Tokopedia-Gojek Didi Chuxing Zuoyebang Expected/ handsomely if its bets paid off. rumored IPOs Full Truck Alliance Delhivery Policybazaar WeWork* Coupang Zymergen The growth-at-all-costs model came under doubt in 2019, after shares in Uber Technologies,

*Via SPAC Source: SoftBank Group, Nikkei Asia research one of the Vision Fund’s biggest bets, fell after SoftBank website from Screenshot

Nikkei Asia - Special excerpt from May 31-June 6, 2021 Print edition. Nikkei Inc. No reproduction without permission. THE BIG STORY

“Some of the companies we invested in were part and 2’s total investment gain for the year ended Early mover Management was involved in funding rounds of Greensill’s lending activities. I don’t know the March was $58 billion. SoftBank invested heavily in 2017 and 2018. Some rivals have begun to outpace worth more than $20 billion this year alone, direct interactions, but we have to reflect on the Son has brushed off the record-smashing profit its spending. (Investment activity of major technology investors; in billions of dollars) compared with SoftBank’s $17.8 billion, according fact that we accepted it.” as a combination of lucky events happening at 50 to CB Insights. Now, a batch of IPOs slated in the coming the same time. His focus is expanding the group’s SoftBank Group One Singapore-based startup investor said Tiger Global Management months may finally vindicate Son’s strategy. portfolio of “224 companies ... to 300, 400, and 500.” 40 Tiger’s strategy resembles the Vision Fund in that In April, Grab Holdings announced plans to list SoftBank wants to create what Son calls a herd: “a GIC Sequoia Capital it “changes the rules of the game with cash.” “It is through a merger with a SPAC, or special purpose group of cutting-edge engineers and entrepreneurs 30 good for disciplined entrepreneurs, but many have acquisition company, in a deal that values Grab at who solve every problem in the world.” moved into fancy offices before turning a profit. almost $40 billion -- the biggest SPAC deal ever. That goal will be tested under the glare of public 20 There are pluses and minuses.” Tokopedia recently announced a merger with markets. In SoftBank’s world, conventional metrics Razorpay, an Indian fintech company, is a Gojek, Grab’s main competitor, and an executive like profits do not matter. Instead, there is “unit 10 symbolic example. In the past few months, the said the combined company plans to go public by economics” -- indicators of future profitability company raised capital from investors including the end of this year. once the cash burning stops. That will converge 0 Tiger Global Management, GIC, Sequoia Capital, Nikkei has reported that Didi Chuxing, the with the quarterly earnings that will be fed to 2017 ’18 ’19 ’20 ’21* Ribbit Capital and Matrix Partners -- some of the result of a merger between Kuaidi Dache and Didi public market investors. Total amount of funding including from participating investors most well-known names in venture capital. Its *As of May 20 Source: CB Insights Dache, has started working with the U.S. Securities “You are transitioning from the venture capital valuation grew from $1 billion in October to and Exchange Commission toward an IPO on the and private equity thinking toward the public $3 billion in April. New York Stock Exchange. The IPO is expected to equity thinking,” said Claudia Zeisberger, a Razorpay’s popularity has been growing due value the company at around $70 billion to $100 professor for private equity and venture capital continues to increase,” said Vision Fund’s Jett, to its reputation as India’s equivalent of Stripe, a billion. SoftBank has invested nearly $11 billion at INSEAD business school. “Once the whole “When we stop, should we ever stop forward U.S. online payments processor that was recently into Didi Chuxing, fueling its expansion across the portfolio is publicly listed, internal measures are investing in the demand that we expect to see, our valued at $95 billion. SoftBank is not an investor country as well as into new areas like autonomous not as relevant anymore.” utilization [of logistics capacity] will increase, and in either of them. driving and grocery delivery. Coupang, for example, reported a net loss of then our profitability will look better.” Even Meesho, which accepted SoftBank’s WeWork has also announced plans to list via a $295 million for the first quarter, an 180% increase Building a track record of IPOs will be key, not investment, politely turned down Son’s offer to SPAC, raising the chance of SoftBank recovering over the previous year. It outstripped the 74% only for returns, but for SoftBank’s reputation. take more capital, according to a person involved some of its losses. Zuoyebang and Full Truck increase in revenue. But based on its own key “SoftBank has been part of some of the largest in the talks. Alliance in China and Delhivery and Policybazaar metric, “spend by customer cohort,” users who e-commerce companies globally,” said Vidit The wild ride from historic losses to record in India are among other IPOs in the pipeline, joined in 2016 on average spent 3.59 times as much Aatrey, co-founder and CEO of Meesho, an Indian profits has also shown that Son, who now according to people with knowledge of the matter. on Coupang in 2020. The fact that existing users social commerce site that accepted funding from owns nearly 30% of SoftBank Group’s shares, Those investments could be a huge windfall for spend more every year is a signal that Coupang SoftBank recently. “It was a no-brainer for us to is unshaken by the calls for change. Yuko the Vision Fund. Its stake in Coupang alone was will turn profitable once it stops building new say yes to it and move forward.” Kawamoto, an external director that joined worth $28 billion as of March. Combined with a factories and hiring delivery staff. a year ago after calls for more governance, is stream of smaller IPOs and the rise in the value “We are very excited to see that customer CROWDED FIELD SoftBank is no longer the among three board members stepping down in of its listed portfolio companies, Vision Fund 1 engagement continues to increase and their spend dominant force in backing startups. Vision June. They follow a string of high-profile board Fund 2 is currently entirely funded by SoftBank departures, including Uniqlo founder Tadashi and is a third of the size of the first fund. That Yanai, who was known for challenging Son. has put it in closer competition to a growing The new board member candidates come from number of investors in private tech companies. Son’s inner circle: Keiko Erikawa, a longtime Mutual funds, and even hedge funds that have friend, Kentaro Kawabe, who runs SoftBank traditionally invested in publicly traded stocks, affiliate Z Holdings, and Kenneth Siegel, a lawyer have moved into the field, hunting for yields in that has advised SoftBank in its M&A transactions. an ultralow interest rate environment. In a message posted on SoftBank’s website, Early backers of the top unicorns are also Kawamoto explained that her departure is doubling down, with the biggest ones outpacing due to her appointment inside the Japanese even SoftBank. U.S. investor Tiger Global government. She also said SoftBank “needs to formulate a form of governance that allows Masa to fully demonstrate his talents, which can then Son says SoftBank “overestimated, or be integrated into shareholders’ value.” She also were overconfident” about WeWork highlighted that SoftBank’s biggest challenge is Reuters Kei Higuchi co-founder Adam Neumann. “to design a succession plan.”

Nikkei Asia - Special excerpt from May 31-June 6, 2021 Print edition. Nikkei Inc. No reproduction without permission.