What Venture Fund Became a Villain in the Industry?

Intro first

In his recent blog post, Hunter Walk points out that first-time fund managers don't pay enough attention to basic, but fundamental components of a venture fund as an enterprise. The message to venture investors Stop being a rookie and become a professional fund manager if you want to be successful!

To uncover and explain all the operations of a venture fund — the backend work that you rarely hear of — is the goal of Venture Capital Executive Program, the first comprehensive course on building a venturefund as a business. We truly believe that startups and limited partners of a venture fund are its customers, and venture capitalists should serve them right.

Role of Softbank Vision Fund in the industry

The largest VC or PE vehicle in history, and even the largest of buyout funds, the Softbank Vision Fund has significantly and globally affected the venture capital arena. With assets $100 billion strong, this Japanese investor dictates its own rules the industry has never seen before. Although fellow venture capitalists call Vision Fund "a great partner" in the media, this behemoth has already forced many other prominent venture firms to revisit their plans.

Venture funds Menlo Ventures, Benchmark, and First Round sold their stakes in Uber during the last financing round with Vision Fund, which hadn't been a plan. This secondary transaction brought almost $1 billion in cash to each fund, but only time will tell whether this was the right move or whether the funds should have retained their stock.

If Vision Fund pushed Uber's valuation 30% down in this deal, in the case of dog-walking service Wag, the fund insisted on a minimum deal size of $300 million and higher valuation than the startup and its current investors envisioned. As a result, venture firms NEA and KPCB, who had both been eager to back the startup, dropped out of this investment round.

In both cases, the Vision Fund lost co-investors, but did the rounds anyway, flexed its muscles, and demonstrated that nothing could stop it.

Patricia Nakache of Trinity Ventures states that: "...the Vision Fund has created this layer of “super-haves” [among startups]. And the “super-haves” are almost untouchable in a way because they’re in a whole different stratosphere from a competitive perspective."

We all know that overvaluation and an excessive load of money hurts startups rather than helps them. We'll see. 

What is Softbank Vision Fund's dealmaking strategy?

For such a considerable amount of money, the Vision Fund has a surprisingly short investment period — only five years from its final closing, which took place at the end of 2017. The Fund started investing in summer 2017, and has already spent one-third of its $100 billion already. Its fundlifetime period of 12 years is typical for a venture fund, however, with that much capital to return, the outlook seems somewhat optimistic even for a PE or buyout structures. For some reason, we have little doubts that the Vision Fund will somehow pull it off. 

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From what we’ve seen to date, it would be fair to say that the Vision Fund invests in key sectors slated to emerge as future megatrends with a purpose of consolidating its stakeholdings and becoming an industry leader in each of those verticals. This is yet another strategy in your VC arsenal along with some others we've discussed

The fund management even found a way out of conflicts of interest with some of its limited partners' investments. For example, Saudi Arabia's sovereign wealth fund had invested in Uber before becoming the Vision's Fund LP, while SoftBank, another LP of the fund, had invested in Uber's rival, Didi Chuxing. Currently, Softbank undoubtedly controls the ride-hailing market holding, along with stakes in other players such as Ola and Grab, and has even considered a stake in Lyft.

Softbank is said to be aggressively headhunting young investors from top venture firms who haven't become partners yet. The quest for fresh talent became so widescale that people who received offers started joking about, “Who hasn’t been offered a job at SoftBank?” We’re certainly curious to find out why these offers weren’t accepted. You can try your luck with Russell Reynolds, the recruiting firm Softbank hired for the headhunting campaign, but don't forget about dozens of other VC job available in the market today. 

In other news:

  • Travis Kalanik has announced his next life chapter and has become a venture capitalist. He's established a venture fund called "10100". Media isn't yet sure whether it's for real or not, since the fund's name is somewhat enigmatic. "10-100" is a known radio code used to signal a 5-minute break usually allocated for bathroom visits. If Kalanick is serious, it's unlikely he's planning to make a play to return to Uber and "Steve Jobs" it. He's also left his email for those who'd like to work with him at (ahem) "10100". Find vetted venture capital jobs here.