This month Japan-based internet conglomerate SoftBank Group was reportedly considering ways to sell its stake in India-focused online retailer Flipkart without attracting a hefty tax liability.
Flipkart was near a deal to sell a majority stake to US-based retailing peer Walmart, for up to $21bn.
SoftBank at time of writing was still deciding how much of its 20-21% holding in Singapore-registered Flipkart it would sell and when, according to news provider LiveMint, which said SoftBank might retain all of its stake for at least one year more to avoid paying a large tax, sources said.
SoftBank through its near-$100bn Vision Fund run by Rajeev Misra became the largest shareholder in Flipkart when it invested more than $2.5bn last August. Potentially nearly doubling returns inside a year for such a large deal helps answer at least one concern that the Vision Fund would effectively overpay for deals and struggle to deliver financial returns back to limited partners, which include SoftBank.
However, the premise of raising such a large fund from sovereign wealth institutions and other corporations was a theory that technology and disruption was only speeding up and on a longer-term time horizon it was important to own the industries of the future.
Local press reports had expected SoftBank’s investment in Flipkart would eventually lead to a four-way merger between Flipkart, its smaller rival Snapdeal, in which SoftBank acquired a $500m stake in 2015, Paytm Mall, in which SoftBank invested $1.4bn last year and the Paytm’s China-based backer Alibaba’s operations in India. SoftBank tried to sell Snapdeal to Flipkart, but the deal fell through leading to SoftBank accepting a potential exit to Walmart.
These strategic underpinnings and the resources to create global champions have already started transforming whole industries, particularly ride-hailing. SoftBank intends to transfer its shareholding in ride hailing companies Uber, Ola, Grab, 99 and Didi Chuxing to its Vision Fund, the Financial Times reported.
Merging all five companies into the Vision Fund portfolio would provide them with access to the fund’s resources and allow them to collaborate and create synergies more easily.
Misra has previously expressed his wish for Uber to focus on core markets such as the US and Europe, as opposed to pursuing a worldwide strategy that would pit it against numerous domestic rivals.
There is already a substantial crossover between the various companies. Uber agreed to sell its Southeast Asian operations to local competitor Grab in February 2018 – though the deal is being investigated by Singapore’s regulator – and sold Uber China to Didi Chuxing in 2016.
Uber has also entered discussions to sell its Indian business to Ola, and Didi Chuxing acquired a majority stake in 99 in January 2018, after SoftBank had injected $100m in 99 in May 2017.
Didi Chuxing raised $5bn in April 2017 from SoftBank as part of a $5.5bn funding round, and the corporate returned in December to also back a $4bn round. SoftBank has also invested in Grab multiple times, beginning with a $250m series D round in 2014.
SoftBank acquired an 18% stake in Uber in December 2017 as part of a secondary share purchase and a direct investment with a combined value of more than $8bn.
While disruptive to taxis and private car ownership in the shorter-term, the ambitions of these portfolio companies and SoftBank are wider as the data flows allow transformation of city transport and delivery more widely.
SoftBank said the Vision Fund was a “new fund created by the Masayoshi Son-led SoftBank Group as a result of its strongly held belief that the next stage of the information revolution is imminent, and unprecedented large scale long-term investment is required”.
The fund’s broadest strategy involves making long-term investments in the foundational platform businesses that will enable the next age of innovation by being active across a wide range of technology sectors from artificial intelligence to robotics and cloud technologies.
SoftBank could be seen as building a capability to see and understand full public and private dealflow while securing the financial tools to capitalise on insights gathered from trends identified in its operational businesses, such as Sprint or ARM.
The vision is effectively corporate venturing on steroids, involving the application of corporate strengths in operational performance and technology roadmaps paired with financial execution and an ability to make money as the cycle shifts up and down.
Although it has made multiple investments in sectors such as online lending, biotech and ride hailing, in a general sense the firm’s larger investment strategy appears to have three distinct patterns.
The first involves the gaining of stakes in large e-commerce or mobile service providers in specific markets (Ola, Flipkart, One97 and short-term accommodation booking platform Oyo in India; Grab in Southeast Asia), allowing it to acquire a central position in their online services industries.
The second is to take a substantial position in market leaders in specific online or mobile subsectors. That includes OneWeb and WeWork, but also the likes of workplace messaging platform Slack, tech-focused real estate brokerage Compass, urban farming company Plenty, sports memorabilia seller Fanatics and AI-equipped insurance provider Lemonade, all of which have received nine-figure investments from SoftBank last year.
The third prong would be SoftBank’s investment in cutting-edge software producers and chipmakers such as Arm, the semiconductor maker it acquired for about $32bn in 2016. It took a $4bn stake in publicly-listed graphics processor producer Nvidia in May, and made substantial investments in endpoint cybersecurity software provider Cybereason, navigational technology developer Brain Corporation and autonomous driving software developer Nauto.
All three areas take a large amount of funding. SoftBank revealed in its financial report for Q3 2017 that it had grown the Vision Fund to $97.7bn, putting an additional $4.5bn into the vehicle itself. SoftBank had initially committed $25bn to in the fund. Limited partners also include consumer electronics companies Apple and Sharp, mobile semiconductor producer Qualcomm and contract manufacturing services provider Foxconn.
Other limited partners include Saudi Arabia’s sovereign wealth fund Public Investment Fund, which has committed $45bn, and Abu Dhabi state-owned Mubadala Investment Company, which put in $15bn.
Press reports indicate a second Vision fund of about $100bn could start to be raised as early as this year.
Misra grew up in India before moving to the US to study at University of Pennsylvania where he gained engineering bachelor’s and master’s degrees, three years later returning to education to gain an MBA from Sloan MIT.
Misra’s professional life started in the 1980s designing satellites at the Los Alamos National Laboratory, then a technology startup. But it was upon leaving Sloan MIT when he joined Merrill Lynch that saw the start of a career in the financial sector defined by bold investment decisions and a rapid rise to management roles.
At Merrill Lynch, Misra joined the derivatives trading desk and was promoted to managing director in a record five years, before joining Deutsche Bank in 1996. Misra spent the next decade leading a team that built one of the world’s biggest and most powerful investment banks from scratch.
Greg Lippmann, who worked under Misra, made headlines when he famously shorted the sub-prime market making Deutsche Bank about $1.5bn in profit while every other bank was losing money as the financial crisis loomed.
Leaving Deutsche Bank in 2008, Misra joined UBS in 2009 and was responsible for rejuvenating the business as head of the fixed-income operation for four years.
Misra, now in his mid-50s, joined SoftBank as head of strategic finance more than two years ago after leaving global investment management firm Fortress Investments Group, where he had worked for less than a year. He now effectively owns his former employer as, in March last year, SoftBank agreed to buy Fortress for $3.3bn and could probably buy UBS or Deutsche Bank too.
In a 2014 interview published on SoftBank’s website and identified by news provider VC Circle, he said he had joined the Japanese company “because it is very stimulating and educational to work in a different industry”, adding: “We are playing a role in the latest industrial revolution on our planet.”
SoftBank has operations in broadband, fixed-line telecoms, e-commerce, internet, technology services, finance, media and marketing, semiconductor design and other businesses, including robotics and a baseball team.
The Fortress acquisition was announced just five months after SoftBank completed its purchase of UK-listed chip designer ARM, paying $31.4bn, which is just a bit more than it paid when it bought 80% of US phone operator Sprint in mid-2013.
Misra has a reputation inside the company for unconventional and visionary approaches. At SoftBank Group he was responsible for the decision to raise money based on the future value of Alibaba shares, rather than simply selling them, in order to fund the takeover of ARM Holdings. Misra was also behind the idea of Sprint issuing cheaper bonds that were secured by the company’s access to spectrum airwaves, which led to a much lower interest rate than the company had paid previously.
Misra has known Masayoshi Son, founder, chairman and CEO of SoftBank Group since Deutsche Bank worked with SoftBank in 2002, and has been tasked with implementing Son’s vision for the fund.
Misra’s elevation to head the Jersey-domiciled SoftBank Vision Fund, with its main office in London and others in New York and Tokyo, came just under four months after SoftBank’s India-born former president and chief operating officer Nikesh Arora quit the Japanese telecoms and investment company after a group of anonymous shareholders accused him of leading SoftBank into making poor investment decisions as well as of conflict of interest. Arora quit soon after even as an internal probe cleared him of any wrongdoing, but he had reportedly pushed for the sale of part of the Alibaba stake and also its holding in Finland-based games maker Supercell, which Tencent snapped up.
Arora’s departure and Misra’s promotion could be seen as a supercharging of its investment efforts headlined by Son’s purchase of this original Alibaba stake during the first dot.com bubble, although its initial corporate venturing efforts started 25 years ago with the launch of SoftVenture Capital Company (currently SBI Holdings, according to the group’s website history).
A quarter of a century on and SoftBank’s strategy is still being marked out by Son and his senior executives, including Ron Fisher, and newer hires, such as Misra, Alok Sama, and Jonathan Bullock.
Misra has a master’s in computer science from the University of Pennsylvania and an MBA from Massachusetts Institute of Technology’s Sloan School of Management.
According to his Facebook profile, seen by VC Circle, he also holds a BTech in mechanical engineering from the Indian Institute of Technology Delhi and did his schooling at Delhi Public School.
His name could probably now be added to the highly-regarded fee-paying school’s Wikipedia list of successful alumni in business.
In a career spanning derivatives, global markets and technology investments and dealmaking – as the New York Times noted, Misra has “the rare ability to reinvent himself”. As CEO of the SoftBank Vision Fund, the company summed up the expectations now on him: “We eagerly await his next success.”
One gauge of this success will be whether , as CEO Masayoshi Son last year said, SoftBank can raise successor funds that could collectively dwarf the original. What is clear is that regardless of how fast it is spending money – and it is going through that $98bn very quickly – there seem to be no competitors, among corporates or VC firms, that can match the size of its wallet.
