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Circle of Competence Issue #50

Quote of the week: 'Culture is religion externalized' - Henry Van Til


Troubled Vision

3 weeks ago in issue 47, I wrote about the magnitude of Masayoshi Son's Vision Fund and the difficulty which may arise in squeezing returns out of such a mountain of capital. This week a piece came out indicating that his investors were balking at some of the high valuations he is paying for equity in private companies, and one quote in particular caught my eye.

A trend has been on the rise in private equity of shifting equity in a single company owned by the same sponsor from one fund to another at a higher price, often to show paper gains that may or may not be illusory. Some of Masa's investors have noticed this behavior with their capital under SoftBank's management:

"PIF is also concerned about SoftBank’s practice of investing in companies first and later transferring the stakes to the Vision Fund—often at a higher price, according to a person familiar with the Middle East investors’ thinking."

It's a bit concerning for investors because it does cast a shadow of doubt around how or if their incentives are aligned with SoftBank's incentives if SoftBank is taking gains from investments at the expense of the fund's limited partners. Incentives and business valuation still matters folks.

Small Business Investing

I've been exploring and learning more about small business investing recently, and this week I was fortunate to have spoken with a friend, Neil O'Donnell, about his journey from the world of corporate law to becoming a search fund operator. Before I get started, I want to point your attention to the three main resources Neil sent me on thinking about investing in small businesses and search funds: