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Investor Spotlight: SoftBank Vision Fund's Investments In Financial Services

Stay sharp with our email newsletter. In SPEEDA Edge’s Investor Spotlight series, we put venture investors under the microscope to examine and evaluate firms’ investment activity across each vertical on our platform. We also highlight aspects of each firm which contribute to its success.
For the first Investor Spotlight, SPEEDA Edge is going big. There is no larger pool of capital than that of SoftBank Vision Fund (SBVF). Deploying over USD 100 billion so far and with tens of billions of dollars in dry powder yet to invest, SoftBank Vision Fund I and Fund II changed the world of growth-stage technology investing.
In this report, we examine SoftBank Vision Fund’s investments in the Financial Services sector and examine how its corporate parent, SoftBank Group Corp., is increasingly reliant on the SoftBank Vision Fund to drive its overall financial performance.

SoftBank Vision Fund’s Investments in Financial Services

If it’s a company that deals with money as its main business, chances are it’s in the financial services sector. Whether it’s providing wealth management tools like personal finance tracking or robo-advisory services, expanding access to and changing the way insurance products are delivered, or plumbing the back-end of financial markets and banking infrastructure with scalable software, there’s a lot of work being done in the sector. After all, there’s likely no better way to make money than by making money move.
Financial services is the third most invested-in sector by the SoftBank Vision Fund.
As of late August 2021, financial services companies make up approximately 13.5% of SBVF’s blended portfolio, based on the companies listed on the portfolio page of the firm’s website.

Key themes

Big data and artificial intelligence are overarching themes that extend across the SoftBank Vision Fund’s investment strategy, and the financial services sector both generates and operates using big datasets and statistical inference to facilitate the services these companies provide.
Here are some of the investment themes which fit more squarely into the financial services sector:
  • Capital as a service. Not so long ago, when a business needed money to grow and didn’t want to sell stock to venture capitalists, they had to go to a bank and fill out a lot of paperwork and provide a lot of documentation and then wait a long time for agreements to be drafted and money to be wired. That sounds like an inefficient way of doing things. A new generation of technology-enabled business lending companies are providing capital as a service to growing businesses, and SoftBank Vision Fund has a lot of exposure to this market niche. One of SBVF’s first deals was Kabbage, which the firm backed to the tune of USD 250 million in Series F funding announced in August 2017. (Kabbage later sold to American Express in August 2020.) Other portfolio companies in the CaaS space are working capital financiers C2FO, OakNorth, and Clearco.
  • Buy now, pay later. The desire to get something today and pay for it later is one as old as commerce itself. Credit card companies capitalized on that by imposing high interest rates and unforgiving fee structures for late payments. But the “new new thing” in consumer purchase financing is Buy Now, Pay Later (BNPL) which enables a new generation of shoppers to pay for goods on installment plans, often with low or no fees or interest if payments are made in a timely manner. SPEEDA Edge projects that BNPL could be a multi-billion dollar market in just a few years. But for a market with so much room to grow, it’s almost surprising that the SoftBank Vision Fund has invested in just one BNPL company: Klarna. SoftBank Vision Fund led a USD 640 million investment round in June 2021, a deal which valued the Stockholm-based company at USD 45.6 billion, post-money. To put that valuation in perspective, Klarna is worth almost twice as much as U.S.-based Affirm, a publicly traded BNPL company co-founded by PayPal alumnus Max Levchin, which has a market capitalization of approximately USD 26.2 billion at the time of writing.
  • Robo-advisory. Similar to BNPL, with all the money flowing into robo-advised stock investing platforms, one would imagine that SoftBank Vision Fund would have more exposure. The only robo-advisory company (currently) in the SBVF portfolio is Chicago-based M1 Finance, which in July 2021 closed USD 150 million in a Vision Fund-led Series E deal which valued the investment app company at USD 1.45 billion post-money. SPEEDA Edge projects that the robo-advised investment sector could reach USD 1.4 trillion in assets under management by 2025.
  • Financial super-apps. The notion of “super-apps” might seem unfamiliar to people from the United States because such all-encompassing, do-it-all-in-one-place mobile applications aren’t the dominant design pattern in the American market. But look outside the U.S. and it’s easier to find examples. WeChat, which in China is used for everything from messaging and calls to online and in-person payments (and much more), is perhaps the canonical example, but other companies elsewhere are also developing super-apps of their own, and SoftBank’s Vision Funds are backing them. SBFV backed London-based financial super-app Revolut and India-focused Paytm. 
  • Neo-insurance products. A lot of the bigger-ticket stuff we buy for ourselves is best viewed as an investment, of sorts. And there’s no better way to hedge one’s bet on something as big as a house or as small as a blender with some type of insurance. Software-enabled insurance and warranty brokers have cropped up over the past several years, and the SoftBank Vision Fund is there to back some of the fastest-growing companies in the sector, which is only set to expand. To that end, SPEEDA Edge projects that the market for neo insurance products will grow to roughly USD 66.6 billion by 2025. SBFV has invested in two neo insurance companies: Extend and PolicyBazaar. Extend is a pure-play extended warranty company in which SoftBank Vision Fund II invested  in May 2021; the SBVF-led USD 260 million Series C round valued Extend at USD 1.6 billion post-money on strong growth throughout the COVID-19 pandemic and into 2021. Another well performing SoftBank Vision Fund investment is PolicyBazaar, an insurance marketplace aimed at India. SBVF first invested in PolicyBazaar back in June 2018 and may have picked up follow-on capital in subsequent rounds of funding. PolicyBazaar filed for an initial public offering in August 2021, and SoftBank is reportedly looking to sell USD 250 million of its stake in PolicyBazaar.

Portfolio companies in Financial Services

Here is an index of SoftBank Vision Fund’s portfolio companies in the Financial Services sector, sourced from the portfolio page of the Vision Fund website.

Vision Fund’s Role As Value Growth Engine For SBG Expands

Japanese conglomerate SoftBank Group is no stranger to the startup investing world. Both the company and its founder, Masayoshi Son, have bought, sold, and backed bold new ventures through a number of investment vehicles since the company’s inception in the 1980s. 
Today, the bulk of SoftBank Group Corp.’s value comes from its subsidiary holdings, including Alibaba Group, T Mobile (which merged with Sprint in 2020), chipmaker ARM, and other holdings. Indeed, SoftBank—the group’s namesake telecommunications brand—as a segment, makes up just 7.7% of SoftBank Group Corp.’s equity value, as of March 2021 according to SoftBank Group Corp’s 2021 annual report.
The SoftBank Vision Fund, launched in 2017, and its 2020 sequel, make up a growing component of SoftBank Group’s overall value, as the chart below shows.
Starting in its 2019 annual report, SoftBank Group Corp. began breaking out the equity value of its different business segments. Using these data from its 2021 annual report, it’s easy to see that the SoftBank Vision Fund seems to play an expanding role in driving overall growth in SoftBank Group Corp.’s equity holdings value. As of March 31, 2021, SoftBank Vision Fund I and II collectively represent JPY 7.5 trillion (USD 68.3 billion) in contributions, making up over a quarter of SoftBank Group Corp.’s net asset value. 
SoftBank Group Corp.’s move to diversify its holdings via increasing its investment activity helped the conglomerate pass through the first year of the COVID-19 pandemic largely unscathed from an overall financial perspective.
The value of SoftBank Group Corp.’s total equity holdings grew 13.3%, from JPY 26.3 trillion in March 2020 to JPY 29.8 trillion in March 2021, primarily due to investments made through its Vision Funds and public stock investment arm. Equity value of SBG’s telecommunications portfolio (comprising SoftBank Corp. and T Mobile) shrank from JPY 7.1 trillion in 2020 to JPY 3.8 trillion in 2021, and its stake in Alibaba Group decreased from JPY 13 trillion to JPY 12.7 trillion in the same period. (Note: Some of this is attributable to a JPY 4.5 trillion asset sale plan announced in 2020, in which SBG divested portions of its holdings in T Mobile, SoftBank Corp., and Alibaba Group to finance share buybacks and debt repayment.)
But this JPY 3.6 trillion decline was offset by over JPY 4 trillion in equity value added to SoftBank Vision Fund holdings, as well as an additional JPY 1.7 trillion in holdings of publicly traded stocks.
Fueled by emerging variants, the COVID-19 pandemic continues to rage on, and renewed pressure from the Chinese government on its technology sector may weigh on SBG’s position in Alibaba Group in particular. Facing headwinds like these, it’s understandable that SBG is upping its bet on external investments; so long as public and venture equity markets continue to point skyward, this growth-via-investment strategy is likely to continue to pay off. However, SoftBank Group Corp.’s expanded reliance on largely money-losing companies in illiquid startup equity markets poses a financial risk to SBG shareholders if ballooning venture valuations start to deflate or the longest stock market bull run on record finally comes to an end.

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