Softbank’s Masayoshi Son invested $20 million in Alibaba and had 34.4% of the company before the IPO and still has 30.07% of Alibaba. Alibaba is worth about $500 billion. Softbank has $150 billion of it.
Alibaba has about $10 billion worth of Yahoo Japan.
Masayoshi strategy with his $100 billion vision fund is that future Alibaba’s or Yahoo Japan’s will pass through the billion-dollar startup Unicorn phase. Normally Google, Facebook, Amazon, Microsoft and other major tech companies would try to gobble up or create the next huge tech companies. Masayoshi is using Middle Eastern oil money to try to force ownership of almost all of the potential $500+ billion technology whales.
He can target all of the high potential companies in Silicon Valley, Shenzhen, Tokyo or other technology hotspots. He can use extra funding to provide the best players with a boost to dominance.
Softbanks’s CEO Masayoshi Son is creating a mechanism to increase their funding ability from 10 trillion yen to 20 trillion yen to 100 trillion yen. The funds will probably have invested in at least 1,000 [unicorn] companies within 10 years.
According to Nikkei, all the Vision Funds are expected to chiefly target unicorns — aka tech startups that haven’t gone public yet but have an estimated valuation above $1 billion. The average scale of investment by the funds is likely to reach about $888 million, it said.
Softbank seems to be looking to tap into about 5% of the sovereign wealth funds.
Warren Buffet talked about believing in American business over the long-term versus gold
At Berkshire Hathaway’s annual meeting 2018, Warren Buffett compared $10,000 invested in gold and stocks in 1942.
Buffet said “all you had to do was figure that America was going to do well over time. You basically had to make one investment decision.”
The ideal investment for Buffett, then, was on American businesses through the stock market. That’s in spite of all the doom and gloom of World War II that would have driven many investors into gold— a tangible, safe-haven asset.
$10,000 invested in an S&P 500 index fund in 1942 (there were none at the time, he noted) would be worth $51 million today.
$10,000 invested in gold would be approximately $400,000.
Investing that same $10,000 that would have yielded $51 million by investing in the American businesses on the S&P would have netted an investor $400,000 in value with gold.
Masayoshi and Softbank are confident that more Alibaba, Google, Facebooks will emerge
Buffet bet on stock business based on valuation and dominating a business. Masayoshi and Softbank and the vision fund are betting on Silicon Valley, Shenzhen, Shanghai, Boston and Tokyo continuing to produce tech giants and even to produce bigger tech giants and more of them.
Masayoshi thinks it is easier to pick the future giant winners at the billion dollar phase.
Adjusted for inflation, the historical average annual return for stocks is around 7%.
Over 20 years this would be almost 4 times the money. Over 10 years this would be 2 times the money.
Softbank and Masayoshi are using the $100 billion vision fund to invest in about 70 Unicorn companies.
It took about 19 years for Alibaba to become a $500 billion market value, but it was only about ten years to go from about $12 billion. In 2009, General Atlantic paid $75 million for Alibaba when it was 40 times less valuable than today.
Softbank is looking for future Alibaba’s at 2006 to 2009 valuation levels.
Getting 30% of one $500 billion company and other companies totaling $200 billion would be $210 billion. Over ten years it would be about breakeven with the S&P average returns.
If Softbank believes technology will do better from 2018 to 2028 than it did from 1997 to 2008 or 2009 to 2018, then there will be more new technology giants.
Getting 30% of two $500 billion company and other companies totaling $400 billion would be $420 billion. Over ten years it would be about double the S&P average returns.
Getting 30% of one trillion company and two $500 billion company and other companies totaling $200 billion would be $660 billion. Over ten years it would be about triple the S&P average returns.