Vision soft
In 1995, tradition was passe. The Bill Gates of Japan re-entered Silicon Valley; cue Masayoshi Son.
Son was an extreme example of a self-made man. His family was part of Japan’s marginalized Korean minority, and his childhood home was a squatter’s shack near a railroad that he shared with six siblings. But although Son’s impoverished beginnings contributed to his legend, they were also a burden. Son’s father attempted to disguise the shame of his ethnicity by adopting the Japanese family name of Yasumoto, and the humiliation drove Son to leave home at sixteen and make his way to California. “I will own my name to prove all human beings are the same,” he vowed as he left. Years later, Son’s ingrained outsider complex was cited as the key to his extraordinary investment style. He gambled like a desperado with nothing to lose, even when his fortune was worth billions.
In November 1995, Son visited Yahoo at its new office in Mountain View, a few miles down the valley from the Stanford campus. Yang and Filo, the founders, embarrassed by the state of their office offered to take their visitor out to a French restaurant. Son waved the idea away. He wanted to get down to business. The founders tentatively suggested a valuation of $40 million, up from just $3 million when Sequoia had invested eight months earlier. Son said yes immediately, without hesitating. (In his later career, Son acquired a reputation for raising and committing funds extraordinarily quickly. In 2016, when he was plotting an investment vehicle called the Vision Fund, he talked $45 billion out of Saudi Arabia’s crown prince in the space of forty-five minutes.)
Son was just getting started. In March 1996, he returned to Yahoo’s office with a bonanza. He proposed to invest fully $100 million in Yahoo. In return, he wanted an additional 30 percent of the company. Son’s bid implied that Yahoo’s value had shot up eight times since his investment four months earlier. But the astonishing thing about his offer was the size of his proposed check: Silicon Valley had never seen a venture stake of such proportions. Private-equity investors and corporate acquirers investing at that scale are usually expected to take full control of companies. Son, in contrast, would be a minority investor and on an unheralded scale.
After Son dropped his bombshell, Yang, Filo, and Moritz (of Sequoia) sat in silence. Disconcerted, Yang said he was flattered but didn’t need the capital.
‘Jerry, everyone needs $100 million,’ Son retorted.
Son ultimately invested just over $100 million in Yahoo. Adding in the shares that he had purchased in the Series B financing, Son now held 41 percent of the company. Sequoia’s ownership had been diluted down to 19 percent. Filo and Yang retained 17 percent each.
On April 12, 1996, Yahoo went public. The shares took off on a wild ride, closing the first day at fully two and a half times what Son had paid for them. Son had made an instant profit of more than $150 million. Until the Yahoo flotation, no single deal had earned Sequoia more than $100 million, the record set by Don Valentine’s bet on Cisco. But by buying into Yahoo on the eve of its flotation, Son had blown past the $100 million mark in a matter of weeks, and without any of the heartache of building a management team from nothing.
Repeating the Yahoo playbook, Son also made large bets on later-stage companies. At the end of 1997, he used the balance sheets of SoftBank and Yahoo to pump $100 million into the pioneer web-hosting company GeoCities, doubling his money when the company went public the following August and ultimately realizing an astronomical gain of well over $1 billion. In 1998, in a variant of his formula, Son bought 27 percent of the online financial-services company E*Trade after it had already gone public. He paid $400 million for the stake; a year later it was worth $2.4 billion. Son used his Japanese connections to launch subsidiaries of American champions: Yahoo Japan, E*Trade Japan, and so on. There was almost no arena in which Son did not play. He launched venture funds in South Korea, Japan, and Hong Kong. He partnered with Rupert Murdoch’s News Corp to invest in Australia, New Zealand, and India. In Europe, he linked up with the French media conglomerate Vivendi. In Latin America, he maintained offices in Mexico City, São Paulo, and Buenos Aires. By one reckoning, Son expanded his personal fortune by $15 billion between 1996 and 2000.
To borrow the language of hedge funds, Son didn’t care about alpha — the reward a skilled investor earns by selecting the right stock. He cared only about beta — the profits to be had by just being in the market. One young investor who managed Son’s funds recalls betting on at least 250 internet startups between 1996 and 2000, meaning that he had kept up an insane rate of around one per week, ten or maybe even twenty times as many as a normal venture operator.
