THE BIG STORY Courtesy of SoftBank Group TOKYO A few years after Bom Suk Kim dropped out of Harvard Business School to launch what would eventually become Coupang, South Korea’s largest e-commerce company, he was at a crossroads. He already had a fast-growing e-commerce site on his hands, and was considering taking it public. Kim had big ambitions: to pivot the company to an Amazonlike model, which he could push even further by building an exclusive delivery network. The problem was that Coupang would need lots of money -- likely to the tune of billions of dollars. If the company were to list, investors in public markets might balk at the investment- heavy model. That was the perfect backdrop for Masayoshi Son’s SoftBank Group. His investment team in Seoul had conducted an analysis of Coupang and its rivals, and found that while others had better cash flow, Coupang had good user experience, according to a person involved in the deal. In June 2015, SoftBank made its move: It injected $1 billion into the company, shattering the country’s startup funding record at the time. Backed by an unprecedented amount of cash, Coupang began building out logistics centers all across the country. That year, Coupang’s revenue tripled from the previous year even while gross profit fell, according to its financial statements. But that did not stop Son. Having set up the nearly $100 billion Softbank Vision Fund in 2017, he had the investment vehicle inject another $2 billion into Coupang in late 2018. The second SoftBank Group Chairman and CEO cash infusion enabled Coupang to launch two Masayoshi Son speaks during an more services: grocery delivery and food delivery. online press conference on May 12. As demand surged for those adjacent businesses Nikkei Asia - Special excerpt from May 31-June 6, 2021 Print edition. Nikkei Inc. No reproduction without permission. 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.