The Exchanges

Q You mentioned the scale, and that's from the very beginning was the big eye-opening thing about the first Vision Fund. Where did all this capital come from?

A Yeah, so in the Vision Fund one, we had six limited partners. One was SoftBank itself, so SoftBank's a big operating company, spits off a lot of free cash flow. The second was the Sovereign Wealth Fund of Saudi Arabia called PIF. The third was the Sovereign Wealth Fund in the UAE called Mubadala. And then we have investments from Qualcomm, Sharp, Foxconn, same company, and Apple. And part of that is historical relationships. Masa had an exclusive to sell the iPhone in Japan, was very close to Steve Jobs. Apple was an investor. Qualcomm's chips are in all of these phones. Foxconn assembles it. Masa owns SoftBank KK, which was our mobile unit, and bought Vodafone. So those long-term relationships and the belief in Masa's ability to create returns Led to those investments. And so we raised a hundred billion dollars and we deployed about eighty eight billion of that in fund one, held back some for follow ons. And we've been investing out of fund two since November of. So about a year and a quarter now in the second fund and across the two, we have roughly a 120 investments.

AI assessment note: “we had six limited partners. One was SoftBank itself... second was the Sovereign Wealth Fund”

Q So as you do look out as you're wont to do about the capital markets over the next couple of years, where do you think this all heads?

A So none of us have a crystal ball, but I'll give you some hypotheses. I think Janet Yellen and the head of the Fed have indicated strongly to the capital markets that the Fed put is going to be in place, i.e. that they're going to backstop liquidity And continue to increase largely the size of our assets on the balance sheet and provide liquidity to the capital markets, particularly during the economic slowdown that the pandemic has created. And that's not just an American-centric view. You look at central banks around the world and they're all pledging to do roughly the same thing. That will continue to buoy assets and assets in the form of gold, in the form of Bitcoin, in real estate, and in equities. And because we have been in a fairly unusual time where inflation has not really a problem. In fact, disflation is probably a bigger risk than inflation over the last few years. I don't think the feds worried about interest rates, and that will continue to allow multiples to expand. It'll allow equities to continue to rise and allow startups to have access to capital because we're in this destructive phase of new companies Taking over the leadership position from incumbents. And you look at that in every industry, it is happening. Every industry, Netflix versus Hollywood, Tesla against Detroit, Uber against the taxi and limousine companies, Airbnb against the hotel industry. And…

AI assessment note: “That will continue to buoy assets and assets in the form of gold”

Q How did you think about price discipline when you had that much capital behind you?

A It's a great question, and there are times where I've heard people say, oh, SoftBank is valuation insensitive. I think there's examples of that, but there are plenty of examples. I could tell you how I passed on Zoom at six billion dollars because I thought that was too expensive, or I passed on Procore. I could keep going on and on at companies that at different points in time seemed expensive. So like any venture capital firm, you're trying to price risk on a daily basis, and when you're in markets that If you look back to just March of last year, the NASDAQ was at 6600. Now it's at 13,800. So when you're in an up market, asset prices tend to continue to rise when you have liquidity and low interest rates that continue to rise. And so you got to price that risk every day. And so valuation discipline, I think, is really important because if you look at all of the academic research and it doesn't matter if it's a private equity or venture capital, the greatest determinant of your returns With the highest R square is your entry valuation. Some people call that vintage, but it is your entry valuation that has the highest R squared. So you want to be disciplined, but in today's world, multiples are expanding quicker than free cash flow or even revenue growth. And so you get greater permissibility to be wrong in your entry valuation in a bull market. The question will be what happe…

AI assessment note: “I passed on Zoom at six billion dollars because I thought that was too expensive”

Q So when you bring all this together, you've got this team, this incredibly thoughtful way of going about investing, having the strategy. What's happened? Like everybody knows the high profile, like the WeWork blow up and things like that. What's actually happened with this huge pool of capital over this period of time?

A So we don't talk a lot about this, but the fund's doing really well. And We recognized that we were the new kids on the block. We showed up with the fanciest car and the biggest bank account, and that created fear, uncertainty, and doubt within the ecosystem. I personally tried to leverage my long-term personal relationships with other venture capitalists and entrepreneurs to help them understand that we're additive to the ecosystem, not just competitive. That's not a zero-sum game. It's not a winner-take-all. We're going to Sit on boards together and co-invest, and other times we're going to compete for term sheets. That's just the coopetition of what Sandhill Road and Silicon Valley is about. And WeWork was not a great outcome for us. It's not over, by the way. There's a talented team that's working on a turnaround and trying to fix that company, and they're making some good strides. But what I encourage people to step back is every single venture firm will have losers that go to zero. They'll have some that return 30 cents on the dollar, 50 cents, 80 cents, some that they'll get a one, two, three X, and a couple they're going to get 10, 20, or 30 X. For us as late stage investors, where in fund one, our average investment was nine hundred million dollars. We're going to have only a handful of 10 or 20 X versus someone putting two million in. So for example, I put roughly six…

AI assessment note: “we don't talk a lot about this, but the fund's doing really well.”

Q So as you've rolled from fund one into fund two, and you mentioned you go a hundred billion, ten billion, which is still huge in that ecosystem, that's a huge step change function lower in size. What was the thinking?

A Yeah, it's largely, again, it's stock and flow and SoftBank's balance sheet is in the strongest position it's been ever with the sale of Sprint to T-Mobile, with the spin out of SBKK, the, uh, cell phone company with the Yahoo Japan spin out with this impending sale of ARM to NVIDIA with some monetization in Alibaba stake. The parent company is sitting on plenty of capital. Capital is not an issue. And in fact, that led Masa to decide that fund two is a sole LP fund. It's just SoftBank's money. And ten billion dollars, as you said, is a large amount of money. And so we'll invest in that and then we'll have another ten billion and another ten billion and another ten billion. And so access to capital in today's world with the strength of the parent company is not a challenge. The challenge is finding great places to deploy that capital at entry valuations that make sense in a market that is fairly jubilant. And so I think maintaining the discipline is the harder part, not the access to capital.

AI assessment note: “led Masa to decide that fund two is a sole LP fund”

Q All right, Jeff, I can't let you go without asking you a few closing questions. So here, let's have at it. What is your favorite hobby or activity outside of work and family?

A Is there anything beyond work and family? I'll say two. One is I've been a poker player since I'm 13 and enjoy playing poker and had the pleasure and the privilege to serve on Caesar's Board, which owns the World Series of Poker, and it's something that my friends and I get to do and experience, though COVID has put a little bit of a clamp on that. Online poker with them is not the same as in person and swapping stories and having shared experiences. And the second is I have three teenage boys and we all enjoy video games, so it's either playing Call of Duty or Madden or League of Legends with them, so those are two fun hobbies.

AI assessment note: “One is I've been a poker player since I'm 13 and enjoy playing poker”

Q So without having that kind of model, at least in your home growing up, how did you first get interested in kind of the business world?

A Reading a lot. Getting exposed to my friend's parents as a teenager. I didn't know what a lawyer versus an accountant versus an executive versus a scientist really did. That was some exposure. Obviously going to college expands that perceptual map and the opportunity set. And I really wanted to run a business. I wanted to be an entrepreneur. It was the Horatio Alger story, right? Rags to riches and being in control of your own destiny. And I remember watching the movie Wall Street. When I was coming of age, and there's a line in there where it says, do you want to make 400,000 dollars a year, or do you really want to be somebody? And I was like, wait a second, someone can make 400,000 dollars? My dad made 18,000 dollars. And that really changed my mind. That's where I learned about investment banking and strategy consulting and being an executive in technology. And I started out my career on Wall Street and then moved into strategy consulting. And then ultimately into operating roles and now as a venture capitalist.

AI assessment note: “Reading a lot. Getting exposed to my friend's parents as a teenager.”

Q So let's get right into this. You're joining Masa-san, a hundred billion dollar fund. What was that original disruptive concept with the Vision Fund from your perspective as one of the partners?

A So Masa has done really well in his career by seeing where the world was going as it relates to technology adoption. Remember I talked about understanding and, and knowing where the customer's going to go, and that's one of my strong suits is anticipating where it Where consumers are going to go. Masa has had a uncanny ability to think about where technology adoption is going. So he saw the first wave of PC and he started selling productivity software and SoftBank's roots was software bank. And that's where SoftBank comes. And so he saw the PC and then he saw the internet. Then he saw broadband. Then he saw mobile. And his next vision was artificial intelligence was going to be the next big adoptive technology that's going to be disruptive, and so we want to find that next generation of companies using AI as an underpinning to create a competitive moat. For me, one of the things that I talked about with Masa, and he agreed and was a big reason why I accepted, I said, I am a capitalist with a capital C. But I also have altruism where if we can help enable companies that are going to do good in the world while we do well as investors, that's a win-win. And Masa had a similar ethos. He called it bringing more smiles and happiness to the world. And so I've been able to use our amazing platform to find and invest and be part of some amazing companies like Memphis Meats, which is gro…

AI assessment note: “his next vision was artificial intelligence was going to be the next big adoptive technology”

Q Curious how you think about outcomes with something like that, because it is venture investing or late stage venture investing, but I Can't imagine anyone was thinking there was a chance you were going to turn a hundred billion into a trillion dollars. So where do you think about risk reward on a pool of capital of that kind of scale?

A So if you look at historic on, again, the data is a little wonky because no one's done a hundred billion. When we started the largest fund, I think was NEA at the time at about a 1,000,000,009, I think they're investing out of their next fund of 3.8 or something now. And then Sequoia has gone on to raise the growth fund and stuff. But If you look at all of the Kauffman Foundation or the NVCSA or the Cornerstone Research, the average fund of a billion or greater returned a one seven one gross and a one four four net MOIC. And that's the average. No one wants to be average in life. Often some of us are right, but you try to be in the top 10% or top 20% in that investment thing. And so if you're looking for funds above a billion and you want to be in the top quartile, then you're looking at something like a 2.3 gross MOIC. And we're doing really well on that relative basis on a hundred billion dollars because the law of large numbers would indicate that it's harder to do that. And so when I go into an investment, I generally won't make an investment if I don't think we could get at least a three X MOIC. And if I target that and we get a two, two, we're fine. And if we happen to hit a home run like DoorDash and we get a 17 or 18 X, that's going to make up for the few that were .3 or one or two. And so again, it goes back to portfolio theory.

AI assessment note: “I generally won't make an investment if I don't think we could get at least a three X”

Q What are some of the best ways you've found to bring out those differing insights across people on your team?

A So in my career, I've done this with every one of my teams. I usually start and we do it every year because new people join or leave the team, but I usually take a couple of days off for us to really go deep as individuals. And I'll do some techniques like we'll do Myers-Briggs or we'll do Enneagram. We'll do a timeline where people literally talk about, hi, I was Born in Brooklyn, New York. I had two older sisters. My first job was this, the moment I was most proud. And you really go deep on your personal side. I'll do things like amulet bags, like bring the three most important things that are reflective of who you are and what you're proud of. And we go really deep. I'm part of YPO, the Young Presidents Organization. We do this as forums, but it's a way to kind of strip away the veneer. I don't care. You went to Brown or you went to Harvard or you went to Princeton or you went to McGill. Who are you? How do you think? What are you here for? What are your fears and your hopes and your dreams? And we get raw really quickly. And so we build up that basis of seeing each other beyond whatever box our job description is or what our LinkedIn profile says. And then we appreciate the differences. In my career at Shutterfly, I built an incredibly diverse organization and was blessed to be recognized as one of the 20 best companies to work for three different times. And at SoftBank, wh…

AI assessment note: “we'll do Myers-Briggs or we'll do Enneagram. We'll do a timeline”

Q is, you know, now you are, let's call them cooperators or coopetitioners. You've mentioned you had spent some time as an advisor to KKR. You were an entrepreneur in residence at Sutter Hill, and you've now, over the last couple of years, seen a new fund or new firm or investment firm form from the ashes effectively. What have you learned about what makes the most successful investment managers tick?

A It's incredibly similar and consistent over time in industry beyond between investment and operating companies. And what do I mean by that? It doesn't matter if you're in a service industry and you're Goldman Sachs or McKinsey, if you're an investment industry and you're Fidelity or Blackstone or SoftBank, or you're creating a company, what you want to do is have a set of true norts, a strong set of values and behaviors. You want to make sure that you recruit well and train well and retain your best and brightest. You want to have KPIs or OKRs or nested objectives in place so that you're measuring progress. You want to be able to fail fast, And you want to run a lot of experiments. You want to be able to reward the people who are performing and weed out the people who are in the wrong job at the wrong time. And you want to make sure that you're servicing your customer and you know who that is. As it relates to an investment firm, who are our customers? Well, one, there are limited partners. They entrust us with their precious capital. The second is it's our portfolio CEOs and the management teams. The third, it's our employees, both our investment staff, as well as the functional and specialists that support and enable us to do what we do every day in the firm. And then it's the communities in which our companies operate in. We have a set of stakeholders that go beyond just ret…

AI assessment note: “what you want to do is have a set of true norts, a strong set of values”

Q In the AI era, asset and wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. You mentioned earlier that you built a team of 15 people, and I'm curious, what did this vision fund organization look like?

A Yeah, there's six or seven of us managing partners around the world. We each have our teams. We have the sectors that we cover. So I oversee consumer and prop tech and we're a firm and a global firm and MAS is the head of that, but we all kind of run our own sectors on a daily basis. So my approach to investing is not to be reactive so that someone's raising money and therefore I look at it. I try to take Three to four sectors a year and go very deep. So for example, take food. I spent seven months mapping out the entire value chain and food from seed development to planting to growing to harvesting to processing to how it gets on the shelves in the cold chain to do that to how retailers call groceries and convenience stores and e-commerce companies pick, pack, and ship to how it Food delivery and prepared meals, how consumers consume, what their diet and health needs are, and then where the economic rents are in that value chain, who the incumbents are, who are the startups, what are the strengths and weaknesses, and who do I believe will win, and then I went on a journey of learning, and so I met with over a 150 food companies, and I would tell them all, I'm getting smart about this space. I will deploy capital. I don't know when. I don't know if it's going to be in you. Tell me only what you're comfortable telling me, And that way it informed my worldview. And of the 18 inve…

AI assessment note: “there's six or seven of us managing partners around the world. We each have our teams.”

Q What teaching from your parents has most stayed with you?

A I think it's get an education, really, and that was a little bit from my mom, certainly, but I also have been fortunate. I happened to date the Valedictorian, and her family went to college and grad school, and I saw the power of the education, and that's my encouragement. I used to go around the country talking to kids that came from humble beginnings about there's money, and you could get scholarships, and even if you have to do it online or get a GED, get an education. All the data shows that it tremendously changes your life, not just economically and financially, but from a health and longevity standpoint, from a happiness standpoint. So it's really all about education. And my wife and I spend all of our charitable time in giving and helping young kids have access to food, because if you're hungry, you can't learn. And then reading, if you can't read, you can't learn. And it's kind of between three and seven is where we need to intercept to be able to help people be on the right curve. Otherwise, they fall through the cracks, and it's part of why we have such division, I think, in our country today, and I wish our politicians and our society was spending more time talking about how we're going to fix education and provide access to everyone to a great education, and I think national security is vital, but we're spending eight hundred and thirty-five billion dollars in our …

AI assessment note: “I think it's get an education, really, and that was a little bit from my mom”

Q I know we're going to talk about different stages of investing in growth companies. Over those 11 years, when you go from a small outfit that's bleeding money to a much larger company that's doing well over that time, can you talk about how do you think about the couple of different phases that you go through and how your role changes at those moments and those phases?

A Being an entrepreneur is hard, right? You go through the depths of despair to the heights of jubilation, and sometimes those Feelings occur in the same day, the same week, or the same month. And what I encourage people to do is set a long range goal, envision what success looks like, and then break them down into manageable chunks. So if you say, look, in 10 years, I believe everyone will have a digital camera in their pocket. Either the thing will keep shrinking, or they'll be in a device called an iPhone, but everyone will have a digital camera in their pocket. And the Total number of images we're going to take are going to go up logarithmically, and therefore that's going to create problems. How do I manage those photos? How do I sort them? How do I store them? How do I make output from them? How do I tag them? How do I access them as we go from three and a half inch floppy disks to CD-ROMs to hard drives and external terabyte storage devices to cloud? And how do I manage to do that? And so anticipating where the world's going to go and understanding what those adoption curves can look like. And if it's flatter or steeper than you think, what are your backup plans? So have a long range goal, 10 years out, and then break it down into chunks of what am I going to do in the next two to three years? And what are the people, process, and technology I need to have to be able to ac…

AI assessment note: “what I encourage people to do is set a long range goal”