SoftBank looking to fund tech-focused ventures
What's the story
Japan's SoftBank Group, in partnership with Saudi Arabia's public investment fund, recently announced a global technology fund of $100 billion.
The fund would be used over the next five years to support technology-focused ventures that are potentially influential.
By tying itself to a tech-only fund, SoftBank is looking to back start-ups that turn out to be multi-billion-dollar companies and change the way of life.
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About SoftBank Group
SoftBank Group Corporation is a Japanese multinational telecommunications and Internet corporation. It was established by Masayoshi Son on 3 September 1981 and is headquartered in Tokyo. In 2015, it was ranked the world's 62nd largest public company on Forbes Global 2000 list.
Growth
Tech businesses vs Non-tech businesses
Experts say that while non-tech businesses also scale, technology scales like nothing else.
A simple social media platform can increase its customer base from 1 million to 100 million without even increasing its team size.
Tech businesses can go from "Minimum Viable Product" to a world changing one in a few years.
So, investors feel tech is the best field to look for growth.
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Scaling up quickly is critical
In the tech field, the ability to grow quickly is critical for gaining funds. A company with most funding can spend more than its competitors. SoftBank would have a slight edge over other VC funds as it can back businesses even with multi-billion-dollar funds.
Diversification
Diversifying the risk by buying a lot of options
Winners and losers of tech businesses look similar at an early stage.
Both successful and unsuccessful tech start-ups look equally healthy at some point.
Investing in tech businesses is like buying an option; after the first round, investors can carefully observe potential winners and support them.
So, buying a lot of options helps investors diversify the risk along with catching the big winners.
Tech entrepreneurs
What does SoftBank's fund mean for tech entrepreneurs?
SoftBank's fund would offer more support for the potentially game-changing but risky ideas.
But, backing from a player like SoftBank insulates entrepreneurs from vagaries.
The large fund improves investors' chances of catching mega winners while simultaneously improving their prospects.
But, there are dangers of huge money being in the hands of a single team; so, SoftBank should build the right culture and management frameworks.