Tokyo — SoftBank Group has secured pledges from Microsoft and other investors of about $108bn for a second Vision Fund aimed at investing in technology firms.

The Japanese conglomerate itself plans to invest $38bn in the fund, it said in a statement. Others set to join include Apple and Taiwan’s Hon Hai Precision Industry (Foxconn) — both investors in the first fund.

Notable by their absence on the list of state and corporate backers are the sovereign wealth funds of the two countries which formed the cornerstone of its first fund: Saudi Arabia and Abu Dhabi, as well as investment bank Goldman Sachs.

SoftBank said it is still talking to potential investors and that it expects the fund’s anticipated capital to grow.

Saudi Arabia’s Crown Prince Mohammed bin Salman told Bloomberg in October that his country was ready to commit a further $45bn through its Public Investment Fund (PIF), adding: “Without the PIF, there will be no SoftBank Vision Fund.”

Those close links later compelled Softbank founder and CEO Masayoshi Son to defend the relationship after Saudi security personnel were accused of murdering Jamal Khashoggi, a journalist critical of the Saudi state.

Discussions between Softbank and PIF were ongoing, but the Saudis will wait for a formal proposal before deciding whether to invest in the new fund, a source familiar with the matter said.

A spokesperson for Abu Dhabi’s Mubadala said it is still in the process of assessing a potential investment. On Wednesday, the Wall Street Journal reported that Goldman Sachs would invest in the fund.

The vision

The second fund’s investor base reflects diversification beyond the Middle East that provided most of the first $100bn fund’s outside capital as SoftBank touts industry-beating returns, with joiners including cash-rich Japanese financial institutions and a Kazakh sovereign wealth fund.

“Those investing two years ago were investing in the vision, there was no proof the concept was going to succeed,” said Sanford C Bernstein analyst Chris Lane. “Given the track record achieved over the past two years, Vision Fund 2 has been substantially de-risked.” 

SoftBank said in May that the first fund had generated a 45% internal rate of return for investors in its common shares, or 29% when debt-like preferred shares are included — though the gains still exist mostly on paper. On Friday, it said other participants in the second fund will include the National Investment Corporation of National Bank of Kazakhstan, Standard Chartered Bank Plc, undisclosed parties from Taiwan, and the fund’s own managers.

The new fund has broad backing from Japan’s financial industry including units of the three mega banks, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group, SoftBank’s statement showed. It said Daiwa Securities Group, Dai-ichi Life Holdings and Sumitomo Mitsui Trust Holdings have also signed memorandums of understanding (MOU).

“The objective of the fund is to facilitate the continued acceleration of the artificial intelligence (AI) revolution through investment in market-leading, tech-enabled growth companies,” SoftBank said in its statement.

Masayoshi Son uses AI as a catch-all term to characterise SoftBank’s investment portfolio, which features businesses as varied as ride-hailing and autonomous driving, insurance and healthcare.

SoftBank has not provided concrete details on the kind of investments it is targeting, said a senior executive at one Japanese bank listed as a participant in the new fund. “The fund itself is, of course, attractive, but what matters is the overall balance of the portfolio,” the banker said, declining to be identified further.

Late-stage start-ups

Friday’s announcement was driven largely by Softbank’s need to alert shareholders to its planned investment in the fund, with details including the fund’s financing structure yet to be worked out, the source familiar with the matter said.

SoftBank Group’s shares ended the day up 1.1% in a 0.5% weaker Nikkei 225.

The first Vision Fund launched two years ago with $60bn in backing from the sovereign wealth funds of Saudi Arabia and Abu Dhabi. It has already burnt through much of its capital with investments in over 80 late-stage tech start-ups.

Bets included Uber Technologies and WeWork parent The We Company in a spending spree that has reshaped the venture capital industry as SoftBank outguns less-capitalised rivals.

“We’ve seen several start-ups start to beat their rivals and push them out of the market, mainly because — and only after — they receive investment and backing from SoftBank,” said one Hong Kong-based senior investor at a large venture capital firm.

SoftBank did not provide details on how it would fund its $38bn contribution to the new fund. With the conglomerate not needing to put up all the money at once, proceeds from the first Vision Fund can potentially be recycled, said analyst Dan Baker at Morningstar.

Such a strategy would rely on the first fund continuing to provide blistering returns, as it transitions beyond identifying and investing in promising start-ups to managing a portfolio of companies that are listed or heading towards public markets.

UBS analyst Kei Takahashi said in a note to clients: “We believe this move should create a positive impression in as much as it confirms the substantial interest in the Vision Fund business and fund procurement capabilities.”