SoftBank $73 Billion Payoff Fuels Japan Startups Push

Photographer: Andrew Harrer/Bloomberg

Masayoshi Son, chairman, president and CEO of SoftBank Corp., at the Chamber of Commerce in Washington, D.C., on March 11, 2014. Close

Masayoshi Son, chairman, president and CEO of SoftBank Corp., at the Chamber of... Read More

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Photographer: Andrew Harrer/Bloomberg

Masayoshi Son, chairman, president and CEO of SoftBank Corp., at the Chamber of Commerce in Washington, D.C., on March 11, 2014.

Japan’s biggest companies have a case of SoftBank envy, and that’s good for entrepreneurs like 23-year-old Takumi Shimizu.

Billionaire Masayoshi Son, 56, has boosted SoftBank Corp. (9984)’s market value to $99 billion since founding the business in 1981, partly from outsized returns on investments in companies such as Alibaba Group Holding Ltd., the Chinese e-commerce operator that has been valued at $153 billion. With stakes in about 1,300 technology businesses, his Tokyo-based wireless carrier is now more valuable than older rivals NTT Docomo Inc. (9437) and KDDI Corp. (9433), which have more subscribers.

With Son’s success, companies including Docomo, KDDI, Sony Corp. (6758) and Nissan Motor Co. have allocated money to venture capital investments. That’s providing new financing options for Shimizu’s networking startup, in a country the World Bank ranks behind Nepal and Tanzania in ease of starting a business.

“Son’s success has provoked Docomo and KDDI,” said Satoru Kikuchi, an analyst for SMBC Nikko Securities Inc. in Tokyo. “They are probably finding it hard to keep up with his moves.”

SoftBank invested an initial $20 million in Alibaba.com in 2000 and now owns about 37 percent of Alibaba Group, which said March 16 it’s preparing for an initial public offering in the U.S.

Alibaba has been valued at $153 billion, according to the average of analyst estimates compiled by Bloomberg. That would make SoftBank’s holding worth more than $56 billion, or 2,800 times its initial investment.

Hiroe Kotera, a spokeswoman for SoftBank, declined to comment on the company’s total investments in ventures.

Docomo, KDDI

KDDI shares rose 2.3 percent to close at 5,794 yen in Tokyo trading, compared with a 0.1 percent drop in Japan’s benchmark Topix index. Docomo fell 1.3 percent, and SoftBank declined 0.4 percent.

Outpaced by Son’s strategic investments and facing saturation in Japan’s wireless market, Docomo, part of the former state telecommunications monopoly NTT, and KDDI also are looking to startups to help rekindle innovation and growth.

Docomo’s venture arm boosted the size of its investment funds in January by 40 percent to 35 billion yen ($345 million). The company set up a 10 billion-yen fund last year and acquired from its parent company an investment unit that operated a 15 billion-yen venture fund.

KDDI, started as an operator for overseas calls in 1953, is considering a new fund after spending about 60 percent of its 5 billion-yen venture fund on 19 startups, including a game publisher, an online English-learning service in Japan and a smartphone-based taxi booking service in the U.K., said Makoto Takahashi, a senior vice president for business development.

Cash Hoard

Sony, Nissan and ANA Holdings Inc. are investors in WiL LLC, a $300 million venture-capital fund to finance local startups. The state-backed Innovation Network Corp. of Japan, founded in 2009, has invested about 700 billion yen in 57 projects as it focuses on energy, electronics, information technology and biotechnology, it said Feb. 12.

The push comes as Prime Minister Shinzo Abe looks to tap the $2.2 trillion in cash held by Japanese companies to fund new businesses and help revive innovation in the world’s third-largest economy.

With most Japanese venture-capital firms run by banks hesitant to take on risk, startup investment totaled 102.6 billion yen in the 12 months through March 2013, the Tokyo-based Venture Enterprise Center said. That’s about 3 percent of U.S. investment, which was $29.4 billion in 2013, according to the National Venture Capital Association.

GungHo Stake

The World Bank ranks Japan 120th of 189 countries in terms of the ease in starting businesses. The U.S. ranks 20th.

“It’s typical of large companies that have been successful to be unable to think beyond the business model that got them there,” said Nobuyuki Akimoto, chief operating officer at NTT Docomo Ventures Inc. “We need new ideas.”

A previous big push by Japan to boost startups by promoting deregulation in the late 1990s led to a venture-capital boom around 2000, which fizzled after the U.S. information-technology bubble burst, Daiwa Institute of Research said in a March 2013 report.

Part of the renewed focus on entrepreneurship has been triggered by Son’s success. Four of SoftBank’s biggest investments alone are worth about $73 billion combined, according to data compiled by Bloomberg.

In addition to Alibaba, SoftBank also was an early investor in GungHo Online Entertainment Inc. (3765), a Tokyo-based game publisher where Son’s younger brother, Taizo Son, is chairman. SoftBank has a stake of 33.6 percent, according to its 2013 annual report. GungHo surged more than eightfold in Tokyo trading last year and now has a market value of $6.9 billion.

Yahoo Japan

Son’s company has about 43 percent of voting rights in Yahoo Japan Corp. (4689), which has a market value of $33 billion, and a stake of almost 37 percent in Renren Inc. (RENN), a Chinese social-networking website operator valued at $1.4 billion, according to data compiled by Bloomberg.

SoftBank doesn’t provide information on the total value of its venture-capital investments, Kotera, the company spokeswoman, said by phone.

Last year, SoftBank paid $22 billion for control of Sprint Corp., the third-largest U.S. wireless carrier.

Docomo and KDDI are following Son’s lead in trying to transform themselves from telecommunications companies into information-technology businesses, said Nikko’s Kikuchi.

KDDI vets about a dozen ideas for possible investment every week and offers entrepreneurs a forum to draw investor attention, meet industry executives and receive assistance in polishing business plans.

Incubation Programs

In December, the spiky-haired Shimizu, who has a management degree from Tokyo’s Meiji University, was among 10 chinos- and sneakers-clad candidates making a slideshow pitch at KDDI’s offices on the 34th floor of a Tokyo skyscraper. KDDI hasn’t invested so far.

Shimizu later received 5 million yen from Movida Japan Inc., a Tokyo-based venture capital firm led by Taizo Son. Shimizu said he will pursue more investments.

“There are people who want to start something but they are unable to make the first step,” Shimizu said in an interview. “Incubation programs and pitch events can offer them a place to start. Sometimes people just need a push.”

Docomo is seeking to invest in voice-recognition technology, health care, robotics and wearable computing. The fund has invested in 10 companies, with an average amount of about 100 million yen since April, Akimoto said.

‘Getting Killed’

The carrier’s Docomo Innovation Village helps six teams refine their business plans for four months. That includes a 2 million-yen investment in two-year convertible bonds, free access to Tokyo offices, cloud-based development tools and sales promotion.

Docomo lost domestic market share to SoftBank after being the last major wireless carrier to offer Apple Inc.’s iPhone. In December, it gained more subscribers than competitors for the first time in two years after starting iPhone sales in September.

Docomo controls 44 percent of Japan’s wireless market, KDDI 28 percent and SoftBank 25 percent, according to data from the Telecommunications Carriers Association in Japan. Only SoftBank gained share in the five years through 2013.

“In our existing businesses, we’re almost getting killed by someone behind us,” Docomo’s Akimoto said. “That’s the sort of company we want to find and help grow. We want to find and help grow a startup that may eventually beat us.”

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Terje Langeland, Suresh Seshadri

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