In late 2017, Softbank announced the creation of it’s new $100B (US) Vision Fund. That announcement has fundamentally changed to nature of later-stage venture investing.
Patricia Nakache, a general partner at Trinity Ventures offered a compelling explanation:
I feel like over the past three years, the venture environment had bifurcated into this world of “haves” and “have nots” where there are some companies that have struggled to raise money and some companies that have been able to raise gobs of money.
But I think what the Vision Fund has done has created this layer of “super-haves.” And the “super-haves” are almost untouchable in a way because they’re in a whole different stratosphere from a competitive perspective.
During the growth-stage, a company’s success is often driven by the amount of capital it has available to spend on sales, marketing, expansion and acquisitions. Uber is perhaps the best example of the “super-haves.” WeWork is another good example. WeWork has raised $6.8B while a competitor, Industrious has raised “only” $142m. It will be very hard for Industrious to compete with WeWork because WeWork can “waste” as much money as Industrious has raised.
This poses a challenge for venture funds as well. They need to find a way for the best companies in their portfolio to become “super-havles.” They have responded by starting to raise their own mega-funds (although none are close to the size of the Vision Fund. Here are a few examples:
China New Era Technology Fund (formed by China Merchant Group, SPF and London-based Centricus - $15B;
Sequoia Capital’s Global Growth Fund ($8B) and various other Sequoia growth funds($4B);
Khosla Venture - $1.4B
Battery Ventures - $1.2B.
It will be years before we know if these investments will pay off. But win or lose, the late-stage venture investing game is forever changed.