SoftBank joins the hunt for the next software giant
TOKYO – Andrew Barnes had no plans to raise hundreds of millions of dollars earlier this year for his Australian workforce training startup Go1. But when he started pitching in front of investors, he was overwhelmed by a flood of interest, including one new candidate: SoftBank.
“When we saw that interest, and thought about the next five to ten years and more, there was a very exciting market opportunity in the area we are in,” Barnes recalled in an interview.
The talks eventually led to a meeting with the Chairman and CEO of SoftBank, Masayoshi Son, who, according to Barnes, “understood and articulated the business model very quickly”. What Barnes particularly appealed to was Son’s ability to articulate how using Go1 data to personalize employee training programs could transform the education industry: “Here’s the big picture, but also some of the technical details of how this becomes possible. ”
In July, Go1 announced a $ 200 million funding round led by SoftBank’s Vision Fund 2 – five times the amount the startup raised in a previous round last year. For SoftBank it was a feat to oust a major competitor, the US fund Tiger Global, for this investment round, even though two Tiger partners participated in their respective capacities.
Go1 offers companies a subscription to over 200,000 courses, from using Excel to executive training. The sector has quickly become an important part of SoftBank’s investment strategy.
The Japanese telecommunications operator, which has developed into a technology investment group, has achieved its greatest returns from consumer-oriented Internet companies such as China’s Alibaba, South Korea’s Coupang or DoorDash from the USA, based on a so-called Software-as-a-Service (SaaS) business model.
Vision Fund 2, launched two years ago with SoftBank as the sole funder, had made 21 investments in enterprise software companies as of June 30, which is more than a fifth of the companies it has invested in. For comparison: the first larger Vision Fund has only eight company holdings or 9.8% of the total.
The opportunity to do business in new territories like Australia is a signal of SoftBank’s clout in the venture capital industry, where investors typically spend years courting the most popular startups. Executives say his team of investment professionals around the world are able to identify the best deals and bring Son to mind.
The wider net is thrown after SoftBank missed out on some key IPOs and stock gains during the COVID-19 pandemic. The late entry drives up ratings in areas where competition for the best deals is already intense.
“Valuations have undoubtedly risen as more capital comes into the market,” said Craig Blair, co-founder and partner of Australian venture capital specialist AirTree Ventures, who has supported Go1 since 2019. âWe have ratings and sizes [in Australia] increased by around 30% in the last three years. But if you look under the waves you will see that there is a real premium for category leaders. “
India was at the forefront of the new strategy. The first Vision Fund made its biggest bets on companies like One97 Communications, the owner of the payment app Paytm, and the hotel chain startup Oyo. The second fund is increasingly targeting companies like Mindtickle, an Indian startup that offers sales readiness software – apps that companies can use to train their salespeople online.
The company first announced that it raised $ 100 million in a funding round led by Vision Fund 2 last November. Less than a year later, in August, it announced another injection of $ 100 million, also led by Vision Fund 2 – this time at a higher valuation of $ 1.2 billion.
Mindtrickle co-founder and CEO Krishna Depura said in an interview that if the company does not raise additional capital quickly, it would risk putting the company behind its competitors.
“Markets are changing phenomenally and in some ways COVID has accelerated the transformation to a digital world. So you see a lot of SaaS companies raising money and growing big because this is the time when new businesses are started.” , he said.
“We can invest in new products and new regions, so we decided to increase these [funding] and get things done faster than originally planned. “Mindtickle, which operates in the US, Canada and the UK, is now planning to enter the Japanese market.
SoftBank has also supported e-commerce startups geared towards enterprise, such as OfBusiness from India and Xiaopangxiong from China. OfBusiness, which helps companies sell and buy commodities such as steel and cement, announced in July that it had raised $ 160 million valued at $ 1.5 billion in a financing round led by Vision Fund 2
Son has supported some of Asia’s largest e-commerce companies, including Alibaba and Coupang, and India’s Flipkart, but has little experience with business-to-business startups.
“He always invests in the consumer internet because he thinks it’s a winner-take-all market: the last man is the biggest company in town and everyone is being decimated. B2B is the other way around, that is, there is one bit “bit for everyone,” Asish Mohapatra, co-founder and CEO of OfBusiness, recalled Son’s words in an online meeting in April.
“One, is it true? And second, if it is true, then how do we make it a winning take-all market? That was his question.”
Mohapatra said he plans to use the proceeds to acquire companies that hold valuable manufacturing, marketing and export licenses, as well as to manufacture his own private label products. “There is very clear potential to actually build a global presence, particularly in Southeast Asia and South Asia,” he said.
Although it failed to attract investors to the second fund, SoftBank accelerated the investment pace by deploying $ 40 billion in equity. Son has stated his goal is to grow the fund’s investment portfolio to 500 companies and eventually 1,000.
The push into enterprise software is partly motivated by the fact that a number of large companies have appeared in the sector without the support of SoftBank. Last year, the US cloud computing company Snowflake raised $ 3.4 billion in the industry’s largest IPO of all time. Others, including video conferencing software developer Zoom, saw prices rise during the pandemic. Atlassian, an Australian company that sells software for developers, more than doubled its US-listed shares last year, bringing it to a market cap of about $ 100 billion.
He appears to have studied Zoom’s so-called product-driven growth strategy, which captured a large corporate customer base by allowing users to use the service for free for up to 40 minutes. For example, an important point of discussion with Mindtickle was how to “give people access to your product and then later find a monetization model,” said Depura. “Zoom is the classic model.”
Exit opportunities for venture capitalists who support the most popular enterprise software companies remain strong. Founded in India and selling customer relationship management software, Freshworks recently increased its price range for its initial public offering in the US, aiming for a valuation of nearly $ 10 billion.
SoftBank’s share price is down roughly 40% from its March high on concerns about regulatory action against Chinese internet companies and declines in its publicly traded consumer investments like Coupang. As it grew its investment in enterprise software, SoftBank has sold some of these consumer names. According to official documents, companies affiliated with the Vision Fund have given shares in DoorDash, Coupang and the US real estate company Opendoor this year.
SoftBank’s history includes a number of mistakes Son pointed out, including investing in US community office operator WeWork and financial firm Greensill. “But what I regret more are the missed investment opportunities,” Son said at a press conference earlier this year.