Son went on to slam ‘unicorn corporate executives’ for ‘always [believing] in their evaluations” and complained that they would not accept “having to see their evaluations [go] lower than they think”. But what Son neglected to mention was that he, to a greater extent than any other individual, was arguably responsible for these assessments.
Masayoshi Son admits he should have been more selective in his investments. Bloomberg
Having made his fortune in telecommunications and an early investment in Chinese online retail giant Alibaba, Son reportedly refused to put less than $100 million into SoftBank-backed ventures. By pushing more cautious investors out of the market, he’s reshaped the tech investing landscape, convincing both his backers and entrepreneurs that companies like Uber and WeWork, which run cars and offices, can scale from the same way as companies that manage software and data, but only if they take enough of their money.
As pandemic restrictions ease, Uber has returned to profitability in recent weeks and SoftBank has now sold its stake in the business to offset further losses. WeWork, meanwhile, is not expected to generate positive cash flow until the second quarter of 2024, 14 years after its inception. But building profitable businesses was never Son’s primary goal. Instead, he casts himself as a member of the modern nobility, presiding over an ever-expanding tech empire, from semiconductor design software and advanced robotics to shared workspaces and dog-walking apps. , which he believes will reshape the world.
“The Biggest Fool Theory”
For a long time, its investors also adhered to this philosophy. “SoftBank had the exact same strategy before the dotcom bubble,” says Hussein Kanji, a partner at Hoxton Ventures, an early-stage venture capital fund. “Beef up other investors and invest a ton more capital than companies need to scale. But this strategy only works in a bullish market. It is, says Kanji, essentially “the biggest fool theory”, suggesting that there will always be a more gullible and greedy investor ready to buy the stock when an investor wants to cash out. “But these markets have all changed. There’s no more ‘biggest fool theory’ because we’ve reached the top and come down.
SoftBank’s major backers grew weary of this approach long before the last recession hit. Both Saudi Arabia and Abu Dhabi investment fund had backed Vision Fund 1. But in February 2020, Reuters reported that neither would commit to the second fund until Son could reverse the performance of the first. Incumbent tech companies, such as Apple and Microsoft, have stepped in to fill at least some of this shortfall, but the biggest one is Softbank itself, which continues to invest a significant portion of its profits, including including those from the rise in Alibaba’s share price, in its own fund.
As scrutiny of Son’s approach intensifies, there is growing speculation that he will take the company private – a tactic commonly employed by companies expecting a series of negative earnings reports but ultimately believe they will survive and grow again.
SoftBank’s pockets are deep enough that it could ultimately profit from the downturn. But the effects of the unsustainable growth created by the company go far beyond its headquarters, the sovereign wealth funds of the Gulf states and cities like London and New York, where metropolitan lifestyles have been funded by SoftBank for decades. years. By convincing oil-rich countries to diversify their revenues using technology funds, Son has become one of the most influential business leaders in the world.
Since the launch of the first Vision Fund in 2017, SoftBank, working with Saudi Arabia, Abu Dhabi and the giants of Silicon Valley, has been determining which industries are disrupted, which companies will fail and where the brightest minds apply their talents.
Technological sovereignty
As the bull run for tech stocks was in full swing, Western leaders hailed the arrangement. On one of his last overseas trips before stepping down as Chancellor of the Exchequer, Philip Hammond visited Son in Tokyo in 2019. After the meeting, Hammond tweeted that he had “promoted the UK as a global center for FinTech, and welcomed the Vision fund’s recent investments in UK technology and the expansion of their London office”. While Brexit jeopardized already sluggish productivity growth and risked deterring foreign investment, the UK, Hammond suggested, remained a technological and open-minded powerhouse.
But political leaders in countries like the UK may now regret giving foreign investors the power to determine which industries and technologies are accelerated and who controls them. As investors like Son take a more conservative approach and prioritize profit over growth, innovation in the West is likely to slow. It is a threat in a whole range of fields, but particularly in those that were previously funded by governments and that require high barriers to entry and are particularly daring, such as space technology, satellite systems to geo-imaging, which can have both commercial and military applications.
In China, meanwhile, where Xi Jinping has made technology a key part of his 100-year plan and where the state retains a tighter grip on the private sector, innovation in areas of emerging technology is less likely to slow down, as it is less dependent on the whims of corporate investors such as Son. Concerns about the pace of Chinese technological progress relative to the West had already been growing in Washington and Brussels for several years. They have been central to the Trump administration’s campaign against Huawei, which has only bolstered Xi’s resolve to develop a more self-sufficient tech sector, and the European Commission’s tech agenda. But as the fallout from the tech slowdown plays out, those fears could become more acute.
As the Huawei saga has proven, post-Brexit Britain is caught in a bind, seeking to appease the United States, without alienating Beijing, while weighing the potential productivity benefits of being one of first nations to embrace emerging foundational technology such as 5G.
For a time, however, the Johnson administration at least paid lip service to concerns about technological sovereignty and even appeared to follow some of the directions Mazzucato shared in his Demos pamphlet in 2014. Downing Street launched an agency innovation fund for advanced research of £800 million. , inspired by the United States Defense Advanced Research Projects Agency which has funded many of the technologies which, as Mazzucato noted, are now in the iPhone. No. 10 also introduced the National Security and Investment Law, to screen foreign investment.
However, progress on both fronts appeared to slow after Dominic Cummings left Downing Street. ARIA took two years to appoint a management team and the government postponed its decision to intervene retrospectively in the sale of Newport Wafer Fab to a Chinese company. Meanwhile, SoftBank’s planned listing of Arm, the world leader in semiconductors, on the London Stock Exchange has stalled due to political instability in the UK.
These questions have remained largely absent from the race to nominate the next British Prime Minister. But Liz Truss, who looks increasingly likely to secure the keys to No 10, gave some insight into her stance on innovation. In a tweet referencing the types of companies SoftBank backs, she said in 2018, “Every generation wants their own version of freedom – the freedom to shape their own lives. It’s a matter of choice, of fate. This generation is made up of freedom fighters who use Uber, Airbnb and Deliveroo.
In the world of Liz Truss, unregulated private sector investment allows consumers to decide which companies fail and which prosper. However, as Masayoshi Son’s SoftBank reminds us, that power is increasingly the domain not of consumers or elected politicians, but of tech visionaries and their investors. We’re only beginning to discover how damaging Son’s approach may have been.
— new statesman
Comments are closed.