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

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

#21

Post by rlucas »

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 deals are hardly what I would call VC-style -- certainly not "early" or even "mid stage" venture. Their very size tends to require much later-stage deals to absorb the large check sizes. This is growth or borderline "mezz" or "PE" frankly.

In contrast, Microsoft Ventures / M12 will do proper early-stage venture, doing a check of $2 M or $5 M or $10 M into a growing but still uncertain company.

Source: I have done single-digit $M deals with M12 and am a VC.

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

#22

Post by mushufasa »

hollerith wrote: post #20
mushufasa wrote: post #13

Earlier quoted context omitted.

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…

can't as in "that asset class does not meet the risk and liquidity requirements for cash management in general"

not can't as in "de-facto illegal."

dereliction of fiduciary duty is illegal, of course the circumstances matter.

I think you are conflating capex + investments with overall cash management.

They already invest a lot in the vision fund. This is a way for them to route more money into the vision fund on top of what they already invest, by tapping into an additional asset class within their portfolio allocation.

If a company's portfolio is a high percentage of cash management products, that's a bad sign of low innovation. If the portfolio is too low a percentage, that's a bad sign also because they would be unable to access liquidity to cover operations given a downturn or sudden need for capex etc... Different companies have different allocations but healthy companies (including google) have allocations into a diverse bucket of asset classes...

> consider this concrete counterexample to your claim

The fact that Google also has a VC arm is not a counter argument. Google allocates some amount of its cash into cash management products as well.

> SoftBank's investors don't need SoftBank to hold cash, treasuries or corporate paper on their behalf

Their customers do. They're still a major telecom company in Japan -- they certainly have operations they need to protect.

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

#23

Post by goatinaboat »

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?

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.

This is a perk for employees. Stock options/RSUs on steroids. It’s nothing more complicated than that.

It’s unusual to do it this way in tech but in big accounting and law firms giving favourable loans for people to “buy into” the partnership is business as usual.

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

#24

Post by tumetab1 »

This smells like walking into bankruptcy.

SoftBank was missing some billions for its own new fund and the solution is create debt to fund the fund. Since it's illegal for themselves to invest in their own... they workaround it through it's own employees.

If a workaround/scheme is required to obtain enough capital for the fund... that means that either there isn't enough capital in the world or that the owners of such capital don't believe in the fund.

The important question is why it's better to resort to this scheme than to not have enough capital for the fund?

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

#25

Post by hollerith »

mushufasa wrote: post #22
hollerith wrote: post #20

Earlier quoted context omitted.

>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…

can't as in "that asset class does not meet the risk and liquidity requirements for cash management in general" not can't as in "de-facto illegal." dereliction of fiduciary duty is illegal, of course the circumstances matter. I think you are conflating capex + investments with overall cash management. They already invest a lot in the vision fund. This is a way for them to route more money into the vision fund on top…

I agree that a company needs to make sure it has enough cash and cash-like assets to cover their expenses. Failure to do so has often resulted in the dissolution of the company although it is very rare for that to be the root cause of the dissolution of a public-traded company of SoftBank's size. But again management has broad leeway here. Can you cite one example of a company that was sued because management ran out of cash and cash-equivalents?

When you say "fiduciary duty", you imply that the company can be sued.

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

#26

Post by hollerith »

mushufasa wrote: post #22
hollerith wrote: post #20

Earlier quoted context omitted.

>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…

can't as in "that asset class does not meet the risk and liquidity requirements for cash management in general" not can't as in "de-facto illegal." dereliction of fiduciary duty is illegal, of course the circumstances matter. I think you are conflating capex + investments with overall cash management. They already invest a lot in the vision fund. This is a way for them to route more money into the vision fund on top…

>Different companies have different allocations but healthy companies (including google) have allocations into a diverse bucket of asset classes

OK, but that's different from your "you can't just take corporate cash and invest it in a private equity fund". If you'd written instead, "having their employees carry some of the equity risk is a way for SoftBank to increase the size of the private equity fund while continuing to make sure that they have enough cash to continue operations", I wouldn't've felt the need to call you out.

I don't know enough about Japan to say, but if it were a US company making this move, I would be more inclined to believe that the loans are mostly intended as a perk for employees like this comment claims: https://news.ycombinator.com/item?id=20736072

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

#27

Post by Traster »

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…

I'm really not understanding this. What you seem to be saying is that when Softbank succeeds they get to own a load of tech companies. That's great, that's the upside of any VC.

Where I'm not understanding is you're saying when they fail, the money they've lost has gone into stimulating demand for japanese goods and kept the currency low. But firstly, that's still them failing - the company will fail, ROI will be low. It might help the domestic japanese manufacturing industry, but it's not going to help softbank.

But also to take your example, Softbank blows a load of money in India on Uber, those Indian Uber drivers go out and buy japanese cars. But it's not like 100% of the cash you're putting into Uber goes to Japanese car companies. It's probably not even 5% - the vast majority of the money will be going to stimulate the Indian economy.

I just don't understand, because what you seem to be saying is that for a primarily export based economy, you should just print money always, that doesn't seem correct to me - but I really don't know enough about it. Surely there must be downside? Normally I'd say this maps to inflation and squeezed living standards- but are we just no longer seeing those effects?

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

#28

Post by bsaul »

tumetab1 wrote: post #24

This smells like walking into bankruptcy. SoftBank was missing some billions for its own new fund and the solution is create debt to fund the fund. Since it's illegal for themselves to invest in their own... they workaround it through it's own employees. If a workaround/scheme is required to obtain enough capital for the fund... that means that either there isn't enough capital in the world or that the owners of such…

OP says SoftBank contributes for 38b to their own 100b fund directly, so i don’t think your explanation is correct...

Plus they apparently did the same thing in their first fund a few years ago.

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

#29

Post by ackbar03 »

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?

I find this strange too. I think they're trying to reduce risk. This basically transforms what would otherwise be an equity investment into a debt investment which lowers overall risk

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

#30

Post by joosters »

goatinaboat wrote: post #23
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?

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. This is a perk for employees. Stock options/RSUs on steroids. It’s nothing more complicated than that. It’s unusual to do it this way in tech but in big accounting and law firms giving favourable loans for people to “buy into” the partnershi…

Yes, this is more convincing, but is still a little concerning. Given current interest rates, presumably these people 'gifted' the 5% loans could have already borrowed money at lower cost, they just wouldn't have had any access to throw the money into the vision fund.

Perhaps the borrowers can take the cash, invest it, then borrow elsewhere at lower rates to pay back the more expensive loan? In all, it still seems a vastly complicated scheme for the attested goals. I guess that there are tax reasons behind it all.

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