The first reaction is to be slightly scared, but then excited about the news that Japan’s SoftBank Group is teaming up with a Saudi sovereign wealth fund to create a new tech investment fund, focussing largely on the Internet of Things.
SoftBank, the visionary and occasionally maverick company led by Masayoshi Son, plans to raise as much as $100 billion in a partnership with Saudi Arabia’s Public Investment Fund.
With these two as foundation investors putting in around $70 billion between them, the idea is to pull other global investors into the fund to create a financial juggernaut to power next generation technologies, many of them in that sweet spot which is the confluence of telecoms and software.
The first thing to be said about this is that the alliance represents an interesting piece of “geo-financial” re-balancing.
A Saudi/Japanese partnership of this scale creates a new leadership momentum for technology development, presenting a bold challenge to US, European and China centric dominance.
SoftBank hasn’t always done things in the conventional way since it was founded in the early 1980s, and has frequently defied – largely western – analysts’ claims that it is built on a house of cards.
While some of its actions have been slightly outlandish, such as the 2008 collaboration with Tiffany & Co to produce a limited edition diamond phone, SoftBank has been on quite an investment roll of late, adding Sprint in the US and investment in Chinese e-commerce giant Alibaba, and ride sharing ventures in China and e-commerce in South Korea.
Founder Masayhoshi Son has put his retirement plans on hold and seems re-invigorated to drive the creation of “Softbank 2.0,” although Softbank 1.0 has some legacy issues to copy with first such as a $100 million debt pile and issues turning around Sprint.
To create the new fund, it has cashed out some $10 billion of its shares in Alibaba, in which it has a 28% stake.
For the Saudis, the fund is significant as a way of diversifying public investment out of the oil industry, which currently delivers two thirds of government revenue. Even the oil kingdom understands that oil is the past and the present, but not necessarily the future.
In spearheading the fund, the new partners will be very much looking to leverage the capabilities of UK chip design house ARM Holdings, snapped up recently for $32 billion – Japan’s biggest ever outbound investment deal.
The ARM story has been well documented. It has harnessed the boffin power of Cambridge University to become the best known of the “Silicon Fen” companies, and its IP dominates instruction set architecture in embedded systems in ubiquitous devices, such as smart TVs, smartwatches and old style technology such as mere laptops and desktops.
The new fund will be based in the UK, an interesting position for straddling the various pockets of innovation happening in the hi-tech world.
To put it all in perspective, KPMG estimates that in the year to September venture capital backed companies around the world – most of them tech focussed – raised around $80 billion.
So in one deal, SoftBank and the Saudi’s could be creating a venture which – at an annual investment rate of $20 billion – could account for one fifth of global venture capital investment.
How this plays out will be fascinating to watch. SoftBank is nothing if not adventurous, and with additional financial muscle behind them the results could be truly transformative.
If you weren’t already strapping yourself in for a wild ride over the next five to ten years, it’s time to start doing it now.