Last month, Softbank made headlines around the world after it reported a whopping $45.8 billion net profit for the fiscal year that ended in March, largely driven by gains in its Vision Fund.
The annual profit was not only the highest of any Japanese company ever and a stark reversal from the 962 billion yen ($8.7 billion) loss registered during the previous fiscal year, it was also logged during a difficult pandemic year.
AI revolution
Commenting on the historic gains, SoftBank Vision Fund Managing Partner Saleh Romeih tells Asharq Al-Awsat that “the restrictions imposed by the Covid-19 crisis and ensuing policies have catalyzed tech adoption by consumers and enterprises”. He adds that “this validates our central thesis that we are in the midst of an AI/tech revolution which will shape the world dramatically”.
“This has disproportionately benefited sectors where we continue to invest: e-commerce, education, enterprise software, entertainment, food delivery, and health care, among others”, Romeih points out.
Talking about this year’s performance, Romeih explains that it has been primarily driven by the “gains in our public investments, which have unlocked significant value”. He adds that “investors continue to be receptive to our market-leading companies when they go public, evidenced by our strong IPO pipeline last quarter: Auto1, Qualtrics and most significantly Coupang went public”.
Private companies have also continued to attract capital from third-party investors, remarks Romeih, as “Cruise, Fanatics, Gopuff have all raised new rounds at significant uplifts”.
Democratizing finance
SoftBank’s Vision Fund has become a major player in fintech venture capital, with massive investments in companies like Zeta and Klarna announced in the past few days alone.
“We believe in the democratization of finance through innovations in tech”, explains Romeih.
“The user experience, reduction in costs and friction, and easier access are all themes that we believe will shape the future of the insurance, lending and brokerage sectors”.
He continues: “Fintech continues to disrupt every segment of financial services from lending (Creditas, Klarna, OakNorth), to payments (VN Life), to insurance (Policybazaar, ZhongAn) to investing (eToro). We invest across the full stack”.
That said, Romeih remarks that outside the pure fintech plays, “there’s also a huge opportunity to embed financial technology within platform businesses. Coupang, Rappi, and Grab for example have all embedded financial services offers within their SuperApp platforms".
A High-risk investment strategy?
Despite its visionary investment strategy, some Softbank critics consider it extremely high risk, citing high-profile failures like WeWork and Greensill Capital as cases in point.
Romeih, however, does not agree. He says that as a late-stage growth investor, “our portfolio is made up of companies with proven business models, dominant market positions and most have a clear pathway to profitability".
He adds that the overall portfolio of Vision Fund 1 and Vision Fund 2 is now 140+ companies, and considers it a reality of investing that not all these companies will succeed. “What is important is that we learn the lessons and continually adjust our investment approach”.
To those who label the Japanese investment giant as a “Billionaires’ factory” that gives founders the capacity to build immense personal wealth, Romeih says: “No, founders are generally only able to monetize gains following a successful IPO, at a value assigned by the public markets”.
He continues: “Our role is to provide sufficient support and capital to see them through the growth phases to becoming a fully-fledged public company”.
“We implement strong governance oversight on founder voting rights and board compositions to ensure the long-term interests of the founder, the company, and us as investors, are aligned”, Romeih adds.
A shared vision
Softbank Vision Fund and Saudi Arabia share a “long-term strategic partnership that spans multiple fronts beyond just delivering returns on the capital bestowed upon us”, notes Romeih.
He explains that the Vision Fund came into existence “because the Saudi Public Investment Fund (PIF) and Emirati Mubadala shared our belief in the AI revolution, and we wanted to invest ahead of it”.
Moreover, the partnership "falls within the principles of Vision 2030, to support the Saudi’s economic diversification away from hydrocarbons, support knowledge transfer and domestic job creation, and provide direct access to cutting-edge technologies around the world”.
Softbank Vision Fund has introduced over 30 companies to the region in the past four years, many of these are now fully operational and serving communities all over the Middle East, explains Romeih.
He adds that “we are actively considering multiple direct investments in the region, and will hopefully be able to share some exciting developments shortly”.
While Romeih admits that Covid-19 has “naturally slowed this process”, there was continued progress in the background, and specifically in Saudi.
Additionally, “we are planning to introduce many more companies in the next 12 months to the kingdom from SVF 1 and SVF 2 when borders reopen”, he confirms.
He notes that Klook has recently announced a partnership with Seera Group and the Saudi Tourism Authority, to promote international tourism in the kingdom.
“Automation Anywhere” has signed MoUs with Civil IT initiatives to form SaaS partnerships with a local provider, while “Saudi Aramco Ventures" recently announced its investment in “Energy Vault”.
