Masayoshi Son's Big Bet
After sharing Fast Company's profile on Masa Son's Vision Fund in last week's edition, I started to think a little bit more about the implications of the massive scale at which he was deploying capital in private companies.
First let's place the fund in historic context in terms of size. After researching just how big the Vision Fund was relative to the largest private equity funds ever, the sheer magnitude of the fund was staggering. The largest (ever) private equity fund was raised by Apollo, weighing in at a massive $24.7B in 2017! By comparison, Son's Vision Fund ($100B) is 4 times as large as Apollo's fund, and will invest in late stage private companies.Their major investors include Saudi Arabia's Public Investment Fund ($45B), SoftBank ($28B), Abu Dhabi's Mubadala ($15B), and a consortium consisting of Apple, Foxconn, and Sharp ($5B).
Since raising the fund in 2017, it has deployed over $70B in (sector) late stage private companies that include (real estate) WeWork, Compass, OpenDoor, (transportation) Uber, Grab, Didi Chuxing, Cruise, (e-commerce) Flipkart, Wag, (artificial intelligence and computing) Nvidia, ARM, and Slack. Keep in mind that there was a record $300B or so of Venture Capital activity in 2018 alone. The structure of the fund is also noteworthy, given that the investors will receive a 7% preferred return on 62% of their capital, with the remaining 38% as equity up(or down)side, according to the Financial Times.
So what will the returns be to such a massive pool of capital? Making some simple assumptions, I calculated that Son will have to return something on a magnitude of over $300B in capital to investors to achieve around a 10-12% IRR over a 12 year period (please note these are very rough estimations!). Not only will he have to distribute this much capital, but given that the fund likes to take a meaningful minority equity position at 15-30% of the equity (see TechCrunch article), this could represent somewhere in the $500-750B range of equity value. Incredible numbers when you think about it. Masa Son is on a quest to create another Google, Microsoft, Amazon, or Apple.
The question that I have been pondering most about the pool of capital is how this fund was able to be raised in the first place. In the spirit of Charlie Munger, it seems that a lollapalooza effect is at work here: