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Softbank (TYO:9984) is seeking access to a $4 billion bridging loan in an attempt to speed up its ability to do deals. In an exclusive reported by Reuters, Masayoshi Son's Vision fund is apparently looking to reduce the time between funds being committed by Abu Dhabi and Saudi Arabia among others being available to use and its ability to actually invest in the companies it swoops in to back.
It shouldn't particularly come as a surprise, although in some respects it seems odd. The Vision fund is eponymous in the world of tech finance and has effectively frozen out a lot of traditional venture capital activity due to the shocking amounts of cash it can wield. Like a big stack poker bully, Softbank's Vision fund has both an astonishing cash line as well as the will to throw it around with (seemingly) reckless abandon. Traditional VC is often frozen out because it can't compete with the sums on offer and chosen start-ups tell stories of being offered more money than they were looking for and told if they don't take it, the money will go to a competitor, leaving bemused tech CEOs with the strange problem of trying to figure out how scale up faster than originally intended.
Numerous factors have likely contributed to the Vision fund seeking this credit line, including a likely medium to long term goal to reduce its highly visible reliance on middle-eastern sovereign wealth funds, including the Saudi Arabian Public Investment Fund. Its significant financial ties to the kingdom have seen Softbank's stock price fall by over 21% since the murder of Saudi Arabian journalist in exile Jamal Khashoggi at a Saudi embassy in Turkey last month.
Softbank Debt Raise(s) - A Change in Strategy?
Multiple facets of the possible credit line which is allegedly being underwritten by Goldman Sachs (NYSE:GS) and Japan's Mizuho (TYO:8411) could be read into. Although it won't be technically or legally backed by the middle eastern sovereign wealth funds which provide so much of Softbank's capital, for all intents and purposes it will be given the alleged attendance of representatives from those funds at meetings with the banks, implicitly backing the concept of a debt cash raise.
Investors which commit cash to funds like the Softbank Vision fund typically provide guarantees up front, not cash. When moving amounts like this, it's not simply a case of transferring from your checking account. Investment funds will obviously have the cash tied up in other ventures but they believe that when a fund like Vision identifies an investment opportunity, it can probably reap a greater return than whatever else they've put the cash into in the meantime. As such, properties may need to be sold, stock positions unwound without negatively hitting the stock price etc. These things take time and that is what the bridging loan would attempt to bridge, the time between an investment being identified and the cash actually made available.
There are numerous reasons CEO Masayoshi Son may want to do this. It's possible (although probably unlikely) that given their inability to secure cash immediately upon the brokering of an investment may have hindered some of its deals in the past and led to terms negotiations being more complex than they might otherwise have been. Additionally this could be seen as a first testing of the waters as to whether there is interest in funding future Vision funds more via traditional debt instruments than just sovereign wealth funds. The bond markets remain a significantly under-tapped resource by Softbank and something which public investors may wish to be able to gain exposure to, particularly if an economic downturn hits (it's overdue now) and markets do their usual thing of abandoning equities for bonds when the next one occurs.
The $4 billion isn't the only debt that is currently being sought, with another $9 billion in the offing which would be backed by the Saudi PIF.
Vision Fund - Approaching Mid-Life?
Softbank CEO Masayoshi Son has spoken previously of his desire to raise $100 billion for successors to the Vision fund every few years. In all likelihood he may want to reduce his reliance on the sources of funding he currently has. Spreading risk, both in investments and funding is obviously something that the firm needs to do and it may be that we're seeing the initial stages of diversification in funding models as the CEO looks to turn the majority of his time to managing the technology investment fund rather than the telco arm of the business.
The fund obviously thinks there is still significant value to be found in the tech startup world and its investments have covered everything from mega firms NVIDIA (NASDAQ:NVDA), Uber, ARM, GM's Cruise division and India's Flipkart (although it has now exited that position selling to Walmart (NYSE:WMT), through to dogwalking services, chat clients and hipster shared office spaces. Access to the CEOs of other Vision funded companies is also an appealing selling point and it looks like the fund is trying as best it can to create a virtuous circle of success around the companies it invests in. As the system of investment matures, we can only help that this company continues to shape the future of the technology landscape with as much vision (ho ho) as it has thus far.
