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Best of Young Turks: When Softbank CEO Masayoshi Son revealed how he picked companies to invest in

The Young Turks Archive features Masayoshi Son, founder of SoftBank this week. Watch the interview to find out how the Japanese investment giant handpicks companies to invest in

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By Jun 18, 2021 9:21:33 AM IST (Updated)

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Best of Young Turks: When Softbank CEO Masayoshi Son revealed how he picked companies to invest in
India’s longest-running show on startups and entrepreneurship Young Turks marks another milestone as it completes 19 years! To celebrate this landmark, we wish to take you through our time capsule, The Young Turks Archive, recounting the journey of some of trailblazing entrepreneurial talents over the last two decades.

As India transforms, shrugging off the old cloak and dressing up with the digital debonair, we believe the lessons gleaned from these handpicked stories will be a trusted guide to the next generation of changemakers. Join us in this celebration of ideas, innovation and inspiration!
This week, we feature Masayoshi Son, the founder of the Japanese investment giant SoftBank. Critics said WeWork will work him out, but SoftBank has made a hard statement by posting the biggest profit in the history of Japan! For FY21, Son's conglomerate recorded profits of $45.5 billion, most of it coming from its Vision Fund unit, which reaped a fortune from the IPO success of the South Korean e-commerce company Coupang.
This year, Son has come to India with a money box! In a record-breaking year for Unicorns in India, Son has come to give a leg up for some aspirants to enter the elite club. He is planning to invest $2 billion in Indian internet companies, which includes SaaS providers Whatfix and MindTickle, FinTech player Zeta and social commerce platform Meesho.
Also, SoftBank has signed a deal with food and delivery platform Swiggy to pump in $450-500 million. That’s not all. After selling his entire stake in Flipkart to Walmart in 2018, Son is now ready to make an investment of up to $700 million to add the IPO-bound e-commerce platform back to his cart.
In this 2016 Young Turks interview, Masayoshi Son hailed the ‘Indian Startup Story’, but indicated it could be too soon for some of the new-age, tech-driven businesses to go public. Today, SoftBank-backed Paytm is planning India's largest-ever IPO, targeting a fundraise of $3 billion at a valuation of over $25 billion.
Catch this Young Turks Archive for more of his insightful answers, veneered with sparkling humour.
Shereen Bhan:
There are forty business ideas of yours on that metrics. Now, correct me if I'm wrong, but this is what I remember reading. On that metrics of yours, the number one measure was that you need to fall in love with the business and stay in love with that business for the next 50 years or so. The other measure was that the business should be unique and you didn't want to do something that somebody else was doing. One of the other crucial measures was that you wanted to, in a period of about 10 years, be at least the number one player in that business in Japan. And the fourth, I believe, was that you wanted to pick a business where the category itself would be growing for the next 30 to 50 years. You didn't want to choose a sinking ship. How much of this still rings true today?
Masayoshi Son: Yeah, it's amazing that you remember all of those. Those are very, very important metrics, which I always keep in mind. We're investing into many companies. Whenever I invest, I look at the eyes of the entrepreneur and I look at the field they're challenging. Are they unique? Do they have a passion? Do they have a great team? Is the market itself supposed to be global? Those are the things I still check as I was starting my own company. When we invest, we look at the company with those metrics.
Shereen Bhan: So, you look at the eyes of the entrepreneur, and then you look at their idea, and of course, the category that they are operating in. When you looked into the eyes of, for instance, Kunal Bahl or you looked into the eyes of Ritesh of Oyo Rooms, what did their eyes tell you? What made you want to put money into those businesses?
Masayoshi Son: Their eyes were sparkling.
Shereen Bhan: Let me take that conversation forward with you. The last chat that you and I had when you visited India in 2014, you made that big announcement that SoftBank has the ability, the will and the capability to invest at least $10 billion, if not more, into India over the next ten years. Do you continue to believe in that vision and that ability? Or, do you believe that given the current global environment, given the current domestic environment, even where the valuations are today, you may rescale?
Masayoshi Son: Well, if I rescale, I will only scale up.
SoftBank Group Corp Chairman and CEO Masayoshi Son speaks during the Wall Street Journal CEO Conference in Tokyo, Japan May 15, 2018. REUTERS/Toru Hanai SoftBank CEO Masayoshi Son speaks during the Wall Street Journal CEO Conference in Tokyo, Japan on May 15, 2018. (Image: Reuters)
Shereen Bhan: Okay. So, what will ten become?
Masayoshi Son: I don't know. But at least in the last one year, we've already invested almost $2 billion now. So if I have said $10 billion in 10 years, I have already done $2 billion dollars in one year. That's over-pacing, right? And, I think we would accelerate with sales. The more I know about India, every time I visit here, I get even more excited, more convinced. This is the country. This is the country of the 21st century.
Shereen Bhan: What are you most excited about India? And, you've said this in the past that you want to participate in India's hockey stick sort of growth, as far as the economy is concerned. Similar to what you did in China. What excites you most about India today?
Masayoshi Son: Well, the people are smart, 800 million young generation below 35 years old, the IT, sunshine, English-speaking, the largest democracy country in the world - all these things make me believe that the 21st century is this country’s.
Shereen Bhan: Okay, the 21st century belongs to India and Indian startups. You know, when we spoke last about valuations, you said that you're not concerned about valuations in India. Since then we've actually seen valuations in the startup ecosystem correct quite a bit, especially over the last 12 to 18 months. You also said that we currently are in an investment phase in India, and one should not get too perturbed about the fact that these companies, a large majority of these companies, continue to make losses. You said it's not the stage for harvesting. When will the stage for harvesting be? What do you see is the timeline because a lot of these businesses are now in pre-IPO stage, a lot of these businesses nearing their ten-decade mark, and you've often spoken about how Alibaba made losses in the first 10 years. When do you believe that we now need to start focusing much more, as far as unit economics is concerned, much more on the path to profitability, which perhaps hasn't been the case so far?
Masayoshi Son: Yeah, I say, five to ten years from the startup, it is not profit or balance sheet that's most important. It is the customer acquisition, the business model, the customer satisfaction, the system and the overall business model that should be created to get the momentum. When you get enough momentum, when you get enough scale with an active user base, then things start to make sense in profitability. Of course, you have to have in mind, from the beginning, what the end result business model will be. So, you cannot just run to burn the money. Ten years from now, when we have enough scale, what will be the business model? How do we make the return? Because, those business models should be created from the beginning in mind. But, if you hire too much, then it's like catching fish. You jump too quickly, the fish goes away.
Shereen Bhan: And, aren't investors also partially responsible for that kind of frenetic scaling up? Don't they push entrepreneurs as well to scale up perhaps before they're even ready?
Masayoshi Son: We need a constant balance. You cannot just burn the money in a stupid way. You have to invest in a smart way. As long as you are investing in a smart way, then that's okay. But, if you are spending in a silly way you have to always adjust.
Shereen Bhan: Okay.
Masayoshi Son: I must say, if it is a small country, small market, even though they have very talented capabilities, the country is too small to fight against a global player who has the old advantage. But, this is one of the very few countries like China and India, this is one of the very few countries that has a huge domestic market as the opportunity to fight back.
Shereen Bhan: Okay. You've seen many boom and bust cycles in your lifetime, in your career. At this point in time, there's a lot of concern on the fact that we are going to be seeing a lot of bloodletting, we are going to see a significant shakeout, we see a significant correction. We are perhaps also going to see forced consolidation, because a lot of you investors, who are actually invested in similar companies, are likely to see investor-driven consolidation in the Indian startup ecosystem. Why lose money on two ventures when you can lose money on one?
Masayoshi Son: Well, sometimes it makes sense to bring the pot together to have an even bigger success, more success. So that shouldn't be moved up. But, each entrepreneur can have their own passion and their own growth by themselves. So, I don't think investors should force something like that. It's rather the opportunities make sense if it makes sense to everybody.
Shereen Bhan: But, do you see a lot of consolidation in the Indian market over the next 12 months?
Masayoshi Son: I would say new, more new stuff started popping up all over more than the consolidation.
Shereen Bhan: Given where valuations are today, given where the global economy is today, given where India is today, how do you see things playing out? You know, a lot of people say,
“Oh 2001 was different. 2008 was different. This time the story is different. The fundamentals are real, the businesses are more real, the business models are more real. Is it really different this time around? Or, is that what investors say to console themselves?
Masayoshi Son: Well, I would say every year is different. Every market is different. But, I truly think this is a real beginning. This is really a beginning, especially for India, this is the beginning of the big bang of a great market happening (sic).
Shereen Bhan: Since we’re also talking about disruption, we’re talking about innovation, I understand that when you were in college at Berkeley, you actually had an ‘Invention Notebook’. At least while you were in college, I believe you put in about 250 ideas. Your big thesis, or your big bet at this point in time is that computers will surpass human capabilities and human intelligence. How soon do you see that happening?
Masayoshi Son: Well, depending on all kinds of things, but one thing I think I am good at is thinking about thirty years ahead.Thirty years ago, when we started a company SoftBank, I said, “Within 30 years, people, almost everybody will have a PC, or a PC-like product”. At that time, there was only a mainframe computer, and it was just the beginning of PCs. But I said that, “This will be in everybody's hands”. Now, I would say, in the next 30 years, computer intelligence and artificial intelligence will surpass human intelligence on many, many fronts. So it will be one million times faster to calculate, one million times more storage and one million times faster to communicate. When that happens, all the paradigm shifts will happen. When that happens, the business model, the lifestyle - all kinds of life will change.
Shereen Bhan: So what does that “then” mean? If you foresee this future over the next 30 years, what does that mean in terms of the kinds of businesses that you would like to invest in, the kind of investment that you would like to support and back.
Masayoshi Son: Those should have a lot of capability of analysing data. Collecting a lot of data on every aspect, analysing it, using the power of computing, and creating a lot of algorithms, deep learning - all those combined. Every business model should be disrupted. So, the disruptor in thinking, disruptor in the way they conduct the business. Those are the ones that I think we should back.
Shereen Bhan: So, would it be fair to then assume that SoftBank would back or support businesses in AI? You know, virtual reality? So on and so forth? Is that going to be the big focus area for you going forward?
Masayoshi Son: Those are the tools. So it's not just a company who creates the technology. It's the companies who use those technologies, and then disrupt all kinds of business models, business fronts. Those are the ones that can be a big fish.
Shereen Bhan: Okay, since we're talking about Startup India and we're talking about what the government should do, we’ve had several of our ministers, the Commerce Minister, saying that, “The government only wants to play the role of facilitator, enabler. It doesn't want to sort of get in there and actually regulate these businesses”. What do you believe the role of the government should be? I also want to share this story because, I believe, at SoftBank when you celebrate SoftBank Day, one of the people that you honour is the Bank Manager who gave you your first loan to actually start SoftBank because you didn't have any collateral at that point in time. And he actually signed off on the first loan. So, what is it that the government should focus on as far as its startup campaign or its policies are concerned?
Masayoshi Son: Yeah, as already been said, whenever a government has the role of licencing something - that's a bad one. The licence means the process to make up the inertia of the passion. When you want to start something, do something and they have to go through the process of licencing with someone who doesn't understand the new technology, for new opportunities that become the bottleneck. So taking out all those obstacles, I think that's a very important thing. The second thing is the infrastructure. The startup companies cannot take care of the infrastructure. Infrastructure takes a lot of capital. So today, in India, two things I think are lacking are mobile broadband - connectivity is too slow and fixed line is old technology. Fixed line and fibre to be the backbone is important but last mile connectivity should be wireless. That's the new trend. But in this country, wireless broadband is not yet ready and too expensive, too slow. The second one is electricity. None of these technologies work without electricity. Of course, the third one is the road and so on. But, of course, these things, startup company cannot take care of.
Shereen Bhan: So, fixing the infrastructure deficit. Let me ask you this, and a lot of people asked me this question, when Alibaba decided to list. Was there pressure on Alibaba to list and so on and so forth? And you always maintained that there was no hurry for Alibaba to list because at that point in time, there was no need to, in that sense, actually raise funds. As you see the Indian ecosystem today, where startups are in their lifecycle, in their business lifecycle, in their financial life cycle, do you believe that we could see an Indian ideal, an Indian e-commerce ideal within the next two to three years or the next five to ten years? What is the kind of broad timeline that we should look at?
Masayoshi Son: Yeah! There’s no hurry.
Shereen Bhan: Because you're going to keep supplying the money.
Masayoshi Son: Yes. The money is not the problem. The problem is when they become a public company, the public company then shifts its focus to announcements and all kinds of minority shareholders. The mind that you have to spend shifts for more different things. So, the first five, ten years should be more of a strategy to become a bigger fish. So, hurrying up too much is not a good thing.
Shereen Bhan: So, you’re saying that at least another five to ten years before we begin e-commerce listing?
Masayoshi Son: Not an e-commerce company or e-commerce listing but in general, rushing is not the most important thing.
Shereen Bhan: Okay. I also wanted to ask you whether it's Bill Gates or John Sculley and so on and so forth…how do you approach money? I remember you said that money is just one measurement. It's not the goal. It's the passion to make the customer happy to see the big smile on people's faces. That's the nicest thing. Is it easy to be dispassionate about money when you're one of the world's richest men?
Masayoshi Son: Well, by the way, in the year 2000, for three days, I was richer than Bill Gates.
Shereen Bhan: That’s right. You were, you were. For three days, I remember that.
Masayoshi Son: And, then next year, our share price fell by 99%.
Shereen Bhan: So how do you recover from something like that? Mentally.
Masayoshi Son: Well, passion, passion.
Shereen Bhan: When you started SoftBank, your vision was to be at least the number one provider of wisdom and knowledge. Today, what is your dream, as far as SoftBank is concerned? What is the vision that guides SoftBank today?
Masayoshi Son: Same.
Shereen Bhan: So, wisdom and knowledge and those oriented businesses are what you would like to bet on?
Masayoshi Son: The Information Revolution. This is the Digital Revolution or another way to say it. This is going to make the power of wisdom and knowledge utilised by people. This revolution is going to be 100 times bigger than the Industrial Revolution, which happened in the 20s and the 19th century. So, this 21st century is the real big success of the Information Revolution. And, there are huge opportunities everywhere in this big way.
Shereen Bhan: Okay, I want to ask you this because I think a lot of people will benefit from what you have to say on this: how do you cope with failure? How do you cope with a bet that doesn’t work out the way that it does, and there have been in your career as well, that haven't gone as per your expectations and as per your plans? How do you cope with failure because not every opportunity that these young startups will decide to take on will deliver the results that they hope.
Masayoshi Son: Yeah! So, I've experienced some types of this. Many failures. We survived. We are alright but the captain of the ship has to make up his or her mind from day one. I will be the last guy to support the ship. So, whenever there is a real danger or crisis, ‘Even if I am the last guy, I will save the ship back again.’ That kind of responsibility, feeling of gods, your concentration, that makes the real, strong mind. And that makes people follow you, to come back again from the crisis. That's true leadership. So, when you have that kind of leader in the portfolio or family companies, I still like to bet on them. But, of course, sometimes it's not enough. The guy is not responsible enough, the business model is not working or the customer is not repeatedly coming, then we have to just forget it and move on. But, we have to choose the entrepreneurs who have that kind of...
Shereen Bhan: Commitment. Someone who is willing to take on that kind of responsibility. I'm being signalled we’ve got our last minute. So, let me ask you this. What do you believe, we've spoken a lot about what makes you confident about India, what makes you bullish about India, what is the number one risk that you would advise people in this auditorium, in this room to be cognizant of, to be careful of? Differentiation. Are you seeing enough differentiation in the Indian startup ecosystem? Would that concern you that we're not actually seeing that many unique businesses being created today? What would be the risks that you would want businesses to take cognizance off?
Masayoshi Son: Well, sometimes. Now, actually, Indian startups are not becoming good because of the success in the US, success in China and so on, the investors are coming. This big cheque. When the big cheque comes to those entrepreneurs, startup companies, sometimes they forget they already became great without maybe delivering something important. But, they should not misunderstand. Just by the investors writing a big cheque that they are already big fish. They should never ever misunderstand.
Shereen Bhan: Okay. So keep the passion to grow the company. The fact that you're actually getting a big cheque today might not necessarily mean that you’ll get one tomorrow as well. So focused on the present. Last ten seconds - India or China?
Masayoshi Son: This is a very political question. I bought some trees.
Shereen Bhan: And, a very politically correct answer. Masayoshi Son, I appreciate you joining us. Thank you very much for your time.
Masayoshi Son: Thank you.
-- Transcription by Arunima Rao, who interned with Young Turks from April to June 2021.
Twitter: @_arunimarao

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