By Brian Bremner It's good to be king. And it's very good to be a king who has cash to play with. When it comes to investing in the Internet and the planet's hottest technologies, you would, of course, be talking about Masayoshi Son, founder of Softbank Corp. and probably the last true believer at the moment in the transforming power of the Net and wireless technologies.
A little over a year ago, Softbank seemed the perfect vehicle for investors looking for a global Internet play. Though it has a core software-distribution business and publishes computer trade magazines in Tokyo, Softbank is basically a global venture-capital fund that owns stakes in hundreds of high-tech companies on the West Coast of the U.S., Japan, and the rest of East Asia, Europe, and even Latin America.
NETWORKED STARTUPS. Son has set up a multilayered company that identifies the promising Internet and digital players, seeds them, helps take them public, and then plugs them into alliances and cross-marketing deals with other affiliated Softbank companies. The best example to date is probably mega-portal Yahoo!. Son helped the company expand in a big way in Japan a few years back. It's now the country's most popular Japanese-language site bar none and a powerful cross-marketing tool for other companies, such as E*Trade and mutual-fund tracker Morningstar Japan, which also have ties to Softbank.
Before the tech equity bubble burst last year, Softbank's stock was changing hands at a frothy $590 a share or so at one point. Global investors have since savaged Softbank's shares, which now trade at about $36. You'd think Son might be throttling back. Hardly. He has already invested, with the help of institutional investors, some $8.8 billion in corporate and venture-capital money in some 600 companies. Now, he has $3 billion more raised to take that number up to 800, and he recently teamed with Cisco Systems to launch a $1 billion fund targeting wireless technologies in Asia.
Son, whose Internet investments started back in the mid-1990s, is still sitting on $9 billion in unrealized gains, and Softbank is generating profits, thanks to its dominance in Japan. But isn't Son going a bit overboard, given the global disenchantment not only with Softbank's stock but anything that smacks of high-tech?
"TOO EARLY FOR ALZHEIMER'S." I put that question to Softbank's Gary E. Rieschel, who runs its U.S. venture-capital division out of Mountain View, Calif. He's the chief star-search guy for Son in the U.S., and since he once worked for Cisco, he will be part of a team of senior executives doing the same in Asia on the wireless front.
First, the bad news for those souls hoping, even praying, for a quick rebound in global techland. Dream on, says Rieschel, that's probably still 18 to 24 months away. "You don't just blow up $4 trillion [in high-tech stock market valuations] and forget about it," he says. "It's far too early for Alzheimer's to set in with institutional investors."
That's not necessarily bad news for Softbank, though. During the dot-com mania of 1999 or 2000, any entrepreneur with a half-baked business plan had venture capitalists all over the Valley salivating. That meant ridiculous valuations and plenty of stupid deals. Softbank wasn't immune, either. It's sitting on huge paper losses in such retail sites as Buy.com and Webvan.
Now, Rieschel says, valuations on startups are at the best range he has seen since the prebubble days back in the mid-1990s. What's more, a lot of low-hanging fruit is available. Some companies with solid prospects but little cash are easy prey for Softbank. In December, for instance, it snapped up a 16.5% stake in Korea Thrunet, which provides high-speed Internet access to 720,000 subscribers in South Korea.
MOBILE-NET HUNT. That's just the sort of quarry Rieschel and his team will be looking for in Asia. The focus will be on wireless-technology specialists in Japan, South Korea, and China. Some 25% of the deals will involve companies with a future that now finds themselves in harm's way. The rest will be startups that will get a round or two of financing and then need to deliver the goods.
What does Softbank bring to the party? In a region where venture-capital outfits specializing in Asian technology are rare, it will try to transplant its methods of benchmarking, startup finance, and business developments to the area's Bill Gates wannabes. "The good news is that you don't have 50 venture-capital firms that really matter out here" as you do in Silicon Valley, he says. Softbank is also the only pure global investor in Internet and wireless technology. That's one reason it's demanding 35% take of any earnings from limited partners in the fund in the coming years.
Of course, finding the next Yahoo! in Asia will be mighty tough. And a few major-league screw-ups could tarnish the fabled image of Son & Co. as a team with laser instincts for the next big thing.
RARE FREEDOM. But for Asian entrepreneurs dialing for dollars, when high-tech initial public offerings are next to nil, the Softbank/Cisco fund is a lifeline. Softbank could extend its tentacles all across the region and dominate the next phase of the Internet's expansion, finding ways to link the Net to the world's biggest concentration of mobile-phone users.
In tough times, smart companies seize the day. Whether Softbank will succeed or not is an open question. But the fact that it has the freedom to try at all is a rarity in these times of mega cash-burn rates and dot-com lynchings in the markets. Bremner, Tokyo bureau chief for BusinessWeek, offers his views every week in Eye on Japan, only for BW Online