Lessons for Entrepreneurs and VCs

Lessons for Entrepreneurs and VCs

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Lessons for Entrepreneurs and VCs

 

(30.9.2019 – Idea Blog)

 

SoftBank and their multi-billion Vision Fund, run by Masayoshi Son, have invested huge sums into the likes of Uber, WeWork, Alibaba and Slack which has disrupted the lives and economies of millions of people around the world.

 

When a startup had Softbank backing, it sometimes meant billions in funding, focussing mostly on growth with less emphasis on profitability. This allowed startups like Uber and WeWork to expand unbelievably fast.

 

On some of its investments, Softbank made billions in returns, as in the case of Alibaba. Masayoshi Son was hailed as a visionary with very long-term plans for disruptive technologies in areas such as AI, mobility, real estate (living and commercial). After his massively successful bet on Alibaba, he continued to invest big in startups that, to be fair, have changed the way we live and work in many cities across the globe. It even made good ROI on India’s Flipkart with its sale to Walmart. Softbank thought it had hit ‘alpha’ with its bets on Uber and WeWork as these companies changed our travel and work lives.

 

But 2019 has proven to be a difficult year for Softbank. WeWork’s IPO was called off and its CEO stepped down, IPOs of Uber and Slack have not been so buoyant. Softbank now has some less than favourable ROI figures to look at, to put it mildly – so-called ‘down rounds’.

 

This may impact Son’s ability to raise a second Vision Fund which was planned to be over US$100 billion. Investors in the first Vision Fund will be all the more hesitant this time around.

 

Critics say that investing such huge sums into startups gives them a false sense of security with money to burn, so to speak which may cause startups to think about growth at any cost rather than being self-sustaining through profits.

 

The unorthodox Masayoshi Son, will have to think out-of-the-box to bring back the exuberance of past years in the startup ecosystem.

 

When Softbank makes big investments then it needs huge ROI for the LPs in the fund to be happy. Big investments in a startup mean either even bigger investments in the next funding round (which few funds can match) or a massively successful IPO.

 

The fallout from Uber and WeWok for investors and entrepreneurs will probably be greater requirement for the startup team to concentrate on monetization and profitability and more governance conditions in any term sheet.

 

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