SoftBank plans to lend $20B to its CEO and employees amid volatile markets • Hacker News Board

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#11

Post by joosters » Mon, Aug 19, 2019, 7:22 AM UTC

mushufasa wrote: post #9

nobrains wrote: post #3

Can someone explain the economical incentives behind this and how it helps SoftBank and the employees? I understand what they are doing but I don't understand how it will work to succeed.

5% for a loan is pretty good these days if it's low risk. With yields way down and now negative, it's hard for companies to make use of cash reserves. If SoftBank has cash, and they know that employees are making way above 5% returns on average ( cough Vision Fund), then it seems like a good investment. For example, 0) SoftBank loans extra cash to Masayoshi Son. 1) Masayoshi Son invests a portion in the next Vision f…

Why bother with the middle man? If Softbank is so confident that its vision fund is going to make much bigger than 5% returns, it should be putting the money directly into there.

The fact that it doesn't do this is a little ominous. Why does it believe that it will get a better return by loaning out cash at 5% rather than investing in its own fund?

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#12

Post by blankaccount » Mon, Aug 19, 2019, 7:31 AM UTC

5822130027 wrote: post #8

It's important to understand what SoftBank is, and why betting against them is a bad idea. Globally we are going through a period of deflation. Japanese Banks have been dealing with this problem for 30 years now. BOJ can print money ( yen ) and flood the world and the value of the yen would still go up ! The reason is there is a lot of latent demand for Japanese exports. When Softbank invests in lets say India, ( thr…

Can you elaborate a bit on the part between Softbank spending on India's uber drivers resulting in an increase of Japanese exports? Is it just that there is a desire for Japanese products in India, but not enough cash?

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#13

Post by mushufasa » Mon, Aug 19, 2019, 7:31 AM UTC

joosters wrote: post #11

mushufasa wrote: post #9

Earlier quoted context omitted.

5% for a loan is pretty good these days if it's low risk. With yields way down and now negative, it's hard for companies to make use of cash reserves. If SoftBank has cash, and they know that employees are making way above 5% returns on average ( cough Vision Fund), then it seems like a good investment. For example, 0) SoftBank loans extra cash to Masayoshi Son. 1) Masayoshi Son invests a portion in the next Vision f…

Why bother with the middle man? If Softbank is so confident that its vision fund is going to make much bigger than 5% returns, it should be putting the money directly into there. The fact that it doesn't do this is a little ominous. Why does it believe that it will get a better return by loaning out cash at 5% rather than investing in its own fund?

Because you can't just take corporate cash and invest it in a private equity fund.

Fiduciary duty requires low risk products, and liquidity. Generally that means long-term debt (e.g. t-bonds) or 'corporate paper' which are nearly risk-free. Those yields are 3% or lower, certainly less than 5%. The risk profiles are about as far away from a VC fund as can be.

Generally a personal loan would be way too risky for corporate cash -- so this is actually an incredible show of confidence in the Vision Fund!

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#14

Post by vmurthy » Mon, Aug 19, 2019, 7:42 AM UTC

blankaccount wrote: post #12

5822130027 wrote: post #8

It's important to understand what SoftBank is, and why betting against them is a bad idea. Globally we are going through a period of deflation. Japanese Banks have been dealing with this problem for 30 years now. BOJ can print money ( yen ) and flood the world and the value of the yen would still go up ! The reason is there is a lot of latent demand for Japanese exports. When Softbank invests in lets say India, ( thr…

Can you elaborate a bit on the part between Softbank spending on India's uber drivers resulting in an increase of Japanese exports? Is it just that there is a desire for Japanese products in India, but not enough cash?

Not OP but here's one way:

Softbank invests in Uber India pushing up automobile demand[1]. Indian drivers buy cars manufactured by Maruti Suzuki (54% market share [2]). Maruti Suzuki is a JV between an Indian company (Maruti) and Suzuki (Japan) where-in Maruti pays 6% of sales as royalty for design and other facilities. In addition, you have to realize that Japan exports $35b of auto parts and $101b of automobiles [4]. So any lever which pushes up sales of automobiles in any nation is bound to have an impact on exports.

[1] https://economictimes.indiatimes.com/small-biz/startups/dema...

[2] https://auto.economictimes.indiatimes.com/news/passenger-veh...

[3] https://economictimes.indiatimes.com/markets/stocks/news/low...

[4] https://oec.world/en/profile/country/jpn/

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#15

Post by 5822130027 » Mon, Aug 19, 2019, 7:56 AM UTC

vmurthy wrote: post #14

blankaccount wrote: post #12

Earlier quoted context omitted.

Can you elaborate a bit on the part between Softbank spending on India's uber drivers resulting in an increase of Japanese exports? Is it just that there is a desire for Japanese products in India, but not enough cash?

Not OP but here's one way: Softbank invests in Uber India pushing up automobile demand[1]. Indian drivers buy cars manufactured by Maruti Suzuki (54% market share [2]). Maruti Suzuki is a JV between an Indian company (Maruti) and Suzuki (Japan) where-in Maruti pays 6% of sales as royalty for design and other facilities. In addition, you have to realize that Japan exports $35b of auto parts and $101b of automobiles [4…

Exactly.

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#16

Post by KptMarchewa » Mon, Aug 19, 2019, 7:59 AM UTC

mushufasa wrote: post #7

rococode wrote: post #4

Tangentially related: Could someone explain to me why SoftBank often seems to be the only major company playing in the "traditional" VC space? We hear of the "SoftBank round", but not, for example, the "Microsoft round" or the "AT&T round". Relative to many companies, SoftBank is not so big. And the bigger companies do have VC-style subsidiaries set up (e.g. Microsoft's M12). But SoftBank seems to make the highest pr…

Softbank isn't really a traditional company. And it's not really a bank. It started as a kindof publisher for software ("software bank"), so it has a lot of expertise in identifying and distributing new technologies, and it's essentially acted as a holding company for tech investments (including alibaba) since 2000. Really it's the manifestation of Masayoshi Son, who is an incredible entrepreneur, technologist, and i…

>Apple+ more invest in the Softbank Vision fund, so the "SoftBank round" is already what you are thinking.

Yeah, but by doing this they essentially outsource the process to Softbank.

I'm assuming OP is curious why they won't make the decisions themselves.

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#17

Post by mushufasa » Mon, Aug 19, 2019, 8:13 AM UTC

KptMarchewa wrote: post #16

mushufasa wrote: post #7

Earlier quoted context omitted.

Softbank isn't really a traditional company. And it's not really a bank. It started as a kindof publisher for software ("software bank"), so it has a lot of expertise in identifying and distributing new technologies, and it's essentially acted as a holding company for tech investments (including alibaba) since 2000. Really it's the manifestation of Masayoshi Son, who is an incredible entrepreneur, technologist, and i…

>Apple+ more invest in the Softbank Vision fund, so the "SoftBank round" is already what you are thinking. Yeah, but by doing this they essentially outsource the process to Softbank. I'm assuming OP is curious why they won't make the decisions themselves.

The Vision Fund is, among other things, the manifestation of the idea that an order of magnitude more scale will qualitatively change VC investing.

VC funds historically have been in the hundreds of millions, so you can invest up to tens of millions in any one company to keep a balanced portfolio.

SoftBank's Vision is in the hundreds of billions, so it can invest up to hundreds of millions.

This means they can single-handedly shepherd companies across the 'valley of death' or out-spend the competition to reach critical network effects... Essentially instead of just making bets, they're tipping the scales.

The point of this strategy is the scale, which is only possible by raising billions from sovereign wealth funds and mega corporations.

No one company could do it. Apple's net income last year was ~$60 billion.

The Vision Fund launched with $100 billion.

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#18

Post by thrwo132123 » Mon, Aug 19, 2019, 8:14 AM UTC

vmurthy wrote: post #14

blankaccount wrote: post #12

Earlier quoted context omitted.

Can you elaborate a bit on the part between Softbank spending on India's uber drivers resulting in an increase of Japanese exports? Is it just that there is a desire for Japanese products in India, but not enough cash?

Not OP but here's one way: Softbank invests in Uber India pushing up automobile demand[1]. Indian drivers buy cars manufactured by Maruti Suzuki (54% market share [2]). Maruti Suzuki is a JV between an Indian company (Maruti) and Suzuki (Japan) where-in Maruti pays 6% of sales as royalty for design and other facilities. In addition, you have to realize that Japan exports $35b of auto parts and $101b of automobiles [4…

+1 Indeed, one of the reasons for the current auto-slowdown in India appears to be the drastic decrease in benefits offered by Taxi aggregators, which is hitting taxi drivers hard. Can't complain, since taxis saturate the roads in Bengaluru already.

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#19

Post by phyalow » Mon, Aug 19, 2019, 8:19 AM UTC

mushufasa wrote: post #13

joosters wrote: post #11

Earlier quoted context omitted.

Why bother with the middle man? If Softbank is so confident that its vision fund is going to make much bigger than 5% returns, it should be putting the money directly into there. The fact that it doesn't do this is a little ominous. Why does it believe that it will get a better return by loaning out cash at 5% rather than investing in its own fund?

Because you can't just take corporate cash and invest it in a private equity fund. Fiduciary duty requires low risk products, and liquidity. Generally that means long-term debt (e.g. t-bonds) or 'corporate paper' which are nearly risk-free. Those yields are 3% or lower, certainly less than 5%. The risk profiles are about as far away from a VC fund as can be. Generally a personal loan would be way too risky for corpor…

>>"Because you can't just take corporate cash and invest it in a private equity fund." Says who? And yes you can, indeed read their financial statements, SB Holdings is a principal investor through and through. It is the directors duty and their imperative as good corporate governors (a rare phenomena in Japan) to deploy and allocate capital in the most efficient manner possible to the highest return opportunities. This reeks of cronyism. The vision fund is a mess of hand marked low/negative free cash flow generating businesses, check out their share price performance in 2001, for a preview of what's to come.

Re: SoftBank plans to lend $20B to its CEO and employees amid volatile markets

#20

Post by hollerith » Mon, Aug 19, 2019, 8:22 AM UTC

mushufasa wrote: post #13

joosters wrote: post #11

Earlier quoted context omitted.

Why bother with the middle man? If Softbank is so confident that its vision fund is going to make much bigger than 5% returns, it should be putting the money directly into there. The fact that it doesn't do this is a little ominous. Why does it believe that it will get a better return by loaning out cash at 5% rather than investing in its own fund?

Because you can't just take corporate cash and invest it in a private equity fund. Fiduciary duty requires low risk products, and liquidity. Generally that means long-term debt (e.g. t-bonds) or 'corporate paper' which are nearly risk-free. Those yields are 3% or lower, certainly less than 5%. The risk profiles are about as far away from a VC fund as can be. Generally a personal loan would be way too risky for corpor…

>Because you can't just take corporate cash and invest it in a private equity fund. Fiduciary duty requires low risk products, and liquidity.

I call bullshit. Specifically, what you wrote is not remotely true under US law or under Japanese law.

A company's managers have very broad leeway to spend the company's cash however they like. In fact, if the cash, treasuries, corporate paper, etc, of a company starts to pile up over the years, the markets tend to take that as a sign of managerial incompetence or at least managerial lack of vision.

Anyone that can buy and hold shares in SoftBank can also hold cash, treasuries or corporate paper directly. In other words, SoftBank's investors don't need SoftBank to hold cash, treasuries or corporate paper on their behalf; they invest in Softbank because they expect that SoftBank has a more ambitious plan than that. Creating and selling the iPhone is an example of an ambitious plan that turned out extremely well for investors in the company with that plan.

If that argument is not persuasive enough, consider this concrete counterexample to your claim: for 6 years, Google had a venture-capital arm:

https://en.wikipedia.org/wiki/GV_(company)

Specifically, although GV is currently owned by Alphabet, for a period of 6 years before that it was owned directly by Google (under the name Google Ventures I believe).