Hey, I'm Dan! I invest in startups at Madrona and write the DL, a weekly newsletter about tech in the Pacific Northwest

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Softbank 2 -- Looking for the next 105 Robinhoods

Last week, Softbank announced that they raised $108B in their second Vision Fund with investors like Apple, Goldman Sachs, and Kazakhstan’s sovereign wealth fund.

Apparently, Vision Fund 1 has had great returns on paper (29% per year), but because they have to set aside cash to pay a 7% annual return to some investors, they’ve already used up most of the cash in the first fund, and it’s time to raise fund 2.

Here is some back of the envelope math on how crazy the Vision Fund is:

  • Softbank has to invest $200B
  • A top quartile return for venture capital is a 2x return
  • To reach that benchmark, Softbank needs to return $400B to its investors
  • Assuming Softbank owns ~50% of the companies it invests in, that means it needs to own companies worth an aggregate of $800B
  • $800B is a lot of money. That is 11 Ubers, or 28 Airbnbs, or 105 Robinhoods

Softbank has made an enormous impact with the Vision Fund, but it’s still unclear if all this cash actually helps startups succeed. For example, after raising $300M from SoftBank in 2018, Wag has struggled to keep pace with Rover, and a recent CB Insights analysis found that the most highly funded startups underperform those who raised less.

(By the way, in case you want to learn more about Softbank and their CEO Masayoshi Son, here is an awesome podcast from Acquired about the story behind Softbank and the first Vision Fund.)

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