 Trying to get back to the basics of great products power comes from sharing information. I try to convince people to slow down Before we go to the episode here's a quick word from our sponsor cap chase Imagine that you could get access to the revenues you will generate in the next 12 months already today. What would it mean for you? Cap chase helps fast-growing recurring revenue companies finance growth without taking on debt or dilution Whether you want to invest in growth or R&D cap chase turns your predictable revenue into growth capital today Cap chase has helped founders unlock hundreds of millions in financing to fuel their growth and on average extend their runway by 8 months and Spared upwards of 16% dilution So go see how insanely easy it is by clicking the link in the show notes or go to cap chase comm slash slush to learn more Thanks, let's go to the episode Hi, welcome to this week's episode of soaked by slush my name is Issa Croutio and next to me is Oana. Hi, Oana Hi, everyone. Nice to be here and as our special guests for this episode from Softbank Anthony Dewey and Nahoko Hishono. Welcome to the soak by slash podcast Great nice to connect guys. Good to see you. Good to see you. Thank you. Good to see you really nice to meet you both Would you like to give a short introduction of who you are? Yeah, sure. So Anthony Dewey, I'm a partner with soft bank vision fund based based in London with late-stage growth equity investors and And Look forward to the discussion today Yes, I'm Nahoko Hishono. I'm a director of the fund. I also sit with Anthony at the London office I've been with the fund for a bit more than two and a half years looking at various industries and it's been a blast so far I think that's an understatement. It's been a very exciting two and a half years. So great to be here Thank you, it's awesome to have you. Yes likewise um, so The vision fund soft bank vision fund in 2017 the biggest In the world of its kind and now there's been a few years And you're already at the second round of it. What is change? How are you sort of approaching this this the second fund? at this time As sure happy to kick off. So We believe in really evolution rather than revolution So our second fund which is currently capitalized at 40 billion as compared to the first fund of 100 The approach is pretty similar. We are looking for market leading companies backed by best in class management teams and founder led And underpinned by ai and big data and disrupting the world disrupting traditional industries through those characteristics of market leadership underpinned by ai and big data The characteristics the companies we're looking for exactly the same fund to versus fund one The biggest change has probably been that we're somewhat more diversified In the second fund and we we've therefore written on average slightly smaller checks So I think in our first fund We did a 90 or so investments And we've invested 90 or so of the 100 billion the remaining 10 being reserved for follow-ups of existing portfolio companies And in the second fund which is 40 billion Thus far We've invested in about 180 companies. So the average check size is smaller. There's greater diversification We have the ability to to write slightly smaller minimum checks Uh, but the range is still pretty broad. So we've done We've gone from 20 and 30 million checks to three billion dollar checks in our second fund Great, do you want to talk a little bit about the diversification of the second fund? So Is it is it different industries different geographical Points, how has the second fund been different in that sense than the first fund? Now hooker do you want to take this phone? I'm sure so Just because we're writing smaller checks and approaching companies at an earlier stage It doesn't really change anything about the investment philosophy of ours So the process is entirely the same in terms of diversity in terms of regions because we are a bigger team now I mean when the fund started, we were only a handful of us and now we are our investment team is born in 20 people So we can cover a range of industries and also in terms of region now We are in the the Nordics of Baltics more in the Middle East including Israel. So we have a bit more bandwidth But in terms of investments, whatever we're looking for a series A or a series F or even later You know, primarily we're looking for just three things. One is the the market opportunity A huge time that has opportunity for a new leader to emerge And that product must be transcendable across borders. So fast growth And then secondly, it's the business or the product fit We're looking for a product that is showing by tech and leverages their AI and data needs to be a scalable business model And it solves the the consumer's pain point on a day-to-day basis And I guess lastly, but most importantly we invest in the people So really we're really excited about meeting all these founders who have a very clear vision who are fearless And they're very execution minded And just they spend the majority of their time thinking about how to Better the customer experience. So those are basically the things that we're looking for Unfortunately, we've been investing in companies that become unicorns and then unicorns and the deco points It's just a very great way to to I guess join the journey earlier on And just to add on the point about geographic diversification So Naoka was talking about our breadth within the European region As a global matter, we invest everywhere in the world from North America, China, India Middle East, Europe But one noticeable trend in our second fund is that we've invested a lot more proportion in Europe And that's been a function of the real Explosion of the quality of companies in Europe that we've seen particularly in the last 12 months especially across all those different regions as Europe of Europe as Naoka was explaining So I think in our second fund we we've done Around 40 investments in Europe has compared to less than 10 in our first fund And so I think by number of companies more than 20 percent of our second fund in Europe And more than 30 percent of the capital is in Europe, which is a significant increase compared to our first fund That's really interesting. Yeah, Europe is an interesting topic We're probably going to get to Europe a bit later here in this episode. There's a lot to say there I'm still like asking about the same question a little bit that Orna was getting at About the different process. I know you said that not much has changed, but I guess intuitively if you if I Compare late-stage to early-stage like you are missing a certain amount of track record of the companies that you are investing in And that is kind of that is an obvious difference So does that difference in track record make the assessment process different? What are you looking at and how do you evaluate? Yeah, I'm happy to comment here. So um I think it's really important for us to clarify that we are not early-stage investors Right. So when we talk about investing Earlier stage what we mean is that we have the ability to write slightly smaller checks And that may mean that we can get into Possibly one round earlier a company than we otherwise would but we very much are not seed series a conventional investors We're not investing in companies that have a limited track record Uh or that that are still experimenting with their product and their go-to-market strategy So This is what we mean when we say that our investment strategy and philosophy is exactly the same and our second fund as our first fund We will only invest in companies where they have a clear product market fit unit economics that are that demonstrable return on growth capital that's demonstrable and Most of the time that means that they've raised capital in the past They've deployed it successfully demonstrated that the return on on that capital And therefore with confidence can invest more capital In the future and the other real really important characteristic for us is that it's a market leader And that we're seeing in these little knee shares Just take a step back Why do we why do we think AI and data is important? It's because AI and data will fundamentally disrupt every industry in the world And that's also why we're sector agnostic Because we look for that characteristic in any sector Where a tech company underpinned by AI and data can disrupt those traditional players in the traditional industry create a new disruptive amazing product or service for its customers And so If you think about what we're looking for is those market leadership players again It cannot be too early in its lifecycle. You wouldn't know that that company's already a leader it just so happens that Sometimes you can now see that leadership characteristic When a company could be in its series b could be in its series c it could be a it could be that it only needs 20 30 50 million For its next phase of growth, but you still can see already that that company's going to be a big leader It's it's completely different From being a venture investor who comes in at the very early stage of a company when they're experimented, right? Definitely Continuing on that are there some certain milestones that you see are critical or every company must have Before you are ready to invest in them. So what kind of? Meters or milestones show that the company has progressed well and is able to scale fast Yeah, no, okay. Do you want to join us? Sure. I mean, I I think I'll just be reiterating what I just said earlier It really is the right, you know market product bit um And the founder because we have a lot of dialogue with founder just to understand How they have come to start in the company, you know, what their journey has been so far And how they think about how they grow the company. So that's really what we're looking for But I think what makes us really unique is I mean masa our founder Is is a guy who really thinks big he wants to see 30 years ahead where the company is going, you know, not not just growing 100% year on year for just two years But a longer period of time So we want to see the scalability in the in the business and whether or not we can see that I think it's a big Determining point whether we're making that investment or not But everything else I think will be to repeat beating yourselves I think We tend to avoid having specific milestones if you need x amount of revenue Or you need to have been around x amount of years or whatever it is But what we want to see is that clear path to being a leader In a space that has a large cam and therefore can be a large company over time So if you take the combination of a management team that's built a quality company that's winning in the market unit economics Like gross margins, for example that are demonstrable across their existing revenue base or their their contracted customers and then return on growth capital Which I talked about earlier It's a ltp. CAC for example where they've spent money in the past Gathered customers as a result as a result of that investment and that you can see that further capital Invested in growth will yield similar results There's a pretty clear path then to a company that that can be a winner over time Great. So we can jump to Europe now. You already Anthony you'll already Said an opening word about Europe, but I guess generally just what is why is it more attractive now? Why is it or is it? It absolutely is it's amazing what's happened in the last 12 months and it I'm not I can't quite figure out if This has been a direct benefit from the pandemic or just a coincidence. I mean certainly that the tech industry Has been fired up by the the constraints that the the pandemic placed on everybody and therefore the requirement for solutions to address those challenges and That I I don't know if that's kind of a direct or indirect We're just randomly happened at the same time. I think the really big change in Europe has been The quality and breadth of the companies has gone up So what does that mean is that if if we looked two or three years ago at investments in Europe? They may have been small companies maybe valued at 1 200 million and maybe looking to raise 10 20 30 million And that was small by our standards, particularly when you look at the the opportunities and the scale of the companies in The u.s. China and elsewhere in the world And that's dynamic, you know dramatically changed in the last 12 months. You've got bigger companies bigger ambitions Probably the biggest change has been the mindset of the entrepreneurs in that they're willing to raise more equity Take more risk invest in growth and have the confidence that investment in growth is going to be successful And we've also seen this fantastic track record over the last year or two where they really have demonstrated that success So we're seeing breakout of these companies both within the region And that can be in its own country in Europe It could be across multiple jurisdictions in Europe Which is a it's a difficult thing to achieve and it's something that european companies have distinct from maybe american companies where Going across multiple EU jurisdictions or the uk EU and other markets in the region is very difficult to do if you can do it It's a real barrier to entry and a powerful skill that you can then leverage abroad But it also can be european companies selling their products in north america in asia and in other markets around the world And so I think that the single biggest step change has been that the entrepreneur mindset the confidence that they have to go to market to raise growth capital And pursue growth which of course is what our counterparts in north america have been doing For a long time And other regions around the world catch up But the amazing thing that happens on the back of that is you see this great track record You see this growth this equity value creation this revenue growth This market penetration of tech companies versus traditional industries and so more capital is also flowing to the region So we got investors from around the world who now want to invest in europe That reinforces the confidence further of the companies the entrepreneurs to invest behind that trend and you get a virtuous cycle of capital And growth reinforcing each other Yeah, I definitely answer that. I mean I think it really is the ecosystem Developing so quickly over the last 12 months so much capital has been drawn into the region That creates I guess A nice playground for these founders to to try out their new ideas You know speaking with venture capitalists It's just becoming a very normal thing and that's what I think Anthony was willing to do as a virtuous cycle There's just so much activity that you see a bit more competition But then I think that adds a lot of positive value to the ecosystem so you can you can definitely see that Change in terms of the dynamics market dynamics, but also what that helps is Also talent development. It was only in london and berlin some of the tech hubs That were notable in europe, but then now we have many more in different regions And I think that just you know reinforces the development of the ecosystem altogether. So yes, we're definitely feeling it Very recently Talking more about european founders. There's been a lot of talk about these Some bigger companies such as Spotify or clarna kind of mushrooming into new companies that the C level or other talent from these earlier success stories Are kind of the new founders of european future unicorns and so on have you seen this in in your investment Or your deal flow or is it usually still first time founders or people coming from very Different backgrounds that tend to found the companies Look, I think it's a I think it's a mix. I mean There are some first-time founders who are very successful There are other companies where the founders have have extensive career backgrounds and have founded a great company I think there's no no specific trend. I think that Probably the difference for us is because we don't come in right after they founded the company We are less sensitive to whether they're a first-time founder or a serial founder than maybe an early stage investor would be You've mentioned mindset a few times confidence these Things that I guess you could call intangibles, but there are still very very tangible I guess it's it's there. They're the source of a lot of the action that that happens within a company Can you speak a bit more about that? Uh, what do you mean by it? How do you how do you assess that? How do you how do you notice that? What's just what's what's your thinking about mindset and how you approach that? Okay, try comments No, go ahead Anthony. I'm trying to think about what the founders have been It is a difficult it is a trickily phrased question. I admit but like but I guess the gist of it is uh, if If you make an assessment according to someone's mindset, I guess I guess the sort of eye-to-eye Moment or or sort of reading between the lines as it were Uh, what is that like? How would you approach that or how do you approach that? Yeah, so look, I think there's always a whole kind of cocktail of ingredients or factors that you have to consider in whether you believe in and want to invest in a company and the just the entrepreneur The founders the management organization they built around them the sense of momentum in their business the amount of human capital They've attracted all of these things are Yes, somewhat intangible factors that that Just through experience you build up a feel for and you have a sense of whether a company is on the right track But I think you would never make an investment decision based on that set of factors alone It always comes alongside. What's the track record of the company? What's the historical revenue trajectory? What kind of Go-to-market strategy have they employed? What what have they done to differentiate their product versus others in the market? Have they developed unique technology? That is different in what what have they done in terms of the team? The software engineers or whatever team constituents have been to to build that up Is it a particular expertise the founders themselves have or is it the tech expertise they've built? So there's so much around You know the company track record that comes along with the founder and their mindset and then Of course, what we really care about is the future and so we look into the business plan We we understand what the growth potential of the company is The the total address of the market the share of that market they're looking to take And how they're going to you know to take that share in in light of the competitive environment That can be traditional players in their industries or it could be other technology disruptors that that are you know playing the same game to to break into the market and so What we really care about is the future And that's where often the skies are limited the founders can think about how much capital is the right amount to raise What do they use it for? How do they do that in a in a disciplined and controlled way to to drive high growth but also with with Sensible amounts of execution risk And then of course what we try to understand is package that all together and form an underwriting case as as to Whether we think the growth that they can deliver In light of the risks that they face is going to deliver us attractive risk adjusted returns like you said, uh, it's a kind of a multitude of things that needs need to be correct, uh for for you to invest But the chemistry between investor and founder is really important as well because it's a it's a long alliance in many countries that Relationship can be even longer than an average marriage So it's really important to have like a good chemistry with your partner with your investor or founder But In Finland at least that's the record but um So if that's so important, there's been also this kind of issue highlighted than often Investors maybe look for founders that are similar than themselves and there's other biases going around as well Have you sought to address that issue? And if so, how? look, I think the um The relationship that the chemistry between investors in terms is critical. There are plenty of investors in the market There are plenty of capital alternatives these companies have and I think in order to bring you on board They first of all have to like and get on with you as individuals so that the report As t as a team that you build as individuals with a company is important Of course, we represent soft bank our institutional brand is strong and that's something that founders may find attractive but They're not going to they're not going to take your capital versus others if they don't have a strong dynamic with you as individuals I think what what they're usually looking for is that Mentorship that guidance that the sense that you're going to help them in the journey And then maybe there's some other things you can bring to the table Whether it's connecting them with the rest of our ecosystem, whether it's helping them on their path to capital markets can be many many things that That we could help founders with but the really important thing is for us to support them in their growth And and let let the management be the drivers and us to be in the background And guiding supporting and helping where we can but the stars in the show really the management too Yeah I think I agree. I mean, we're definitely the cheerleaders not not really the coach Of the basketball team, but I mean, I think in terms of those the bias Issue that you raise it's absolutely right. You tend to Connect better you have better chemistry with people who have very similar backgrounds to you And we try to be conscious about it, but it's very natural So I think what we try to do at least From a very minimum is I mean our team is very diverse. We come from all different backgrounds. We represent I guess different Ethnic groups as well. So we try to have a bit more openness in terms of understanding Founders and their backgrounds. So I think that's one Us being a cheerleader, that means we are the support group and as Anthony said, we are a huge organization You know, we organization of the software group. It stems from, you know, Japan and then to the US Have people from all sorts of I guess different functions So when a founder or the management team in general, they need anything We are there to help and connect them to the right people in our ecosystem And I mean, we we tried to do that on a daily basis, you know We're later stage investors, but as much as we pitch We are patient and I think it's you know, one of the key selling points is that we are now pressured To return capital immediately. We can be a bit more patient and time. We can be longer term investors So, you know, we try to work along with founders and the The exact team and try to find what is the right path for them at the right point in their time. So Let me try to do There's uh There's records and as a capital go in our venture capital actually going around going around right now Sorry for that mess of a sentence How is it competitive? Is it more difficult to get into rounds now? these days and how does it show in your in your work Yes, so I talked a little bit about this trend earlier on which is we've seen more capital attracted to Europe, for example, because the region's become a more attractive investment area and We we actually see that as a pretty positive trend on on the whole because There are more investment opportunities that are available at the scale and growth that we that we see and with arguably better risk-adjusted returns or growth profiles and therefore That more capital But better quality opportunities and therefore net net that there's enough good quality investment opportunities to go around So, yes, there is there there is more competition in the sense that there may be more investors around any given situation We tend to see different investors each time. Sometimes it's competitive. Sometimes it's not Sometimes there are plenty of interested parties, but they clearly prefer you sometimes they might prefer someone else that but overall We see an abundance of quality opportunities much stronger than we saw in Europe. Let's say two or three years ago When arguably there were much fewer investors in the region. So You you go back a few years We might have been the only investor but there were very few opportunities to invest in european companies at the scale We were looking to invest Now there's vastly more opportunities and yes, there are more investors But net net there are still many more where we get the opportunity to invest that have the favorable risk-adjusted returns that we look for So I think that the the markets in a good place is definitely not an overwhelming number of investors that are making it too competitive um Maybe continue on that kind of down the road When companies grow and you look for the next Funding stage, there's always options. There's the next growth funding. There's an exit and there's an ipo at least How do you define Which is the right path for the company? Of course the founders are defining it themselves But how do you support them in this process and how do you guide them? Finding their way onto the next stage I can comment on that. I guess that's an interesting question because I mean, it's true that quite a few of our portfolio companies are deciding to Go for the spag or the ipo route recently um, but we can always say that's really case by case Each company is very different each company has own reasons and benefits becoming a public company um, and You know, maybe for a consumer company It's the the publicity or the brand awareness that they're going after and maybe for some enterprise companies They want credibility being a public business company so What we try to do, I mean we always come in as minority investor and it's really up to the The founder and the board to decide when is the right time to exit or go public Well, we try to just be with them to figure out what the right strategy is at the right point And if an ipo is not the right path for them at a specific point in time, that's totally fine If there's a need for additional capital, we try to provide that for them So there's there's really no pressure from aren't but I think a good example will be Ali Baba where muscle invested in them in 1999 And they went public only in 2014. So it took 15 years for the investment to materialize But if it makes sense for the company to stay private for that long, it's totally fine We don't need to return capital because we're investing our own funds and we can afford to be patient and wait So it's really a case by case Yeah, I think just Just to add a little bit to what my hooker said And it's a big decision for any company to go public and that could be an ipo It could be a SPAC or a direct listing The most important thing is for the company to go public when it's actually ready to do that And I think when you see that that great event of an ipo You know, give a couple of examples in Europe this year. We IPO auto store a warehouse automation business out of Norway earlier this week Very successful event. We IPO auto one the german used car trading platform on the frankfurt stock exchange earlier in the year and these are companies that have really built a great path to a public exit to When I say an exit having a liquid currency that their employees can take advantage of that crystallizes some Some liquid value for that those employees who work tirelessly over the years with their equity to build those those phenomenal In the case of, you know, kind of unicorns and decacorns great example because auto store is a decacorn And and and auto one's not far off So, you know, phenomenal events for the company for their employees Can can in some cases it can be an advantage because you have currency for m&a It can provide you with a lot of capital, you know, it's a one bank raised a billion dollars And where there are others in the market who may be private who may not be able to raise that amount of money to fund growth That can be a strategic advantage. So there are many reasons why going public can be a good thing But what's critical is that the company is ready for it So both of those companies have been preparing for years and we're absolutely in the right stage to be a public company I think for companies that are not ready. It becomes a distraction You get you have to report call to leo by any learnings the market focuses on that it may compromise your strategic long-term planning And, you know, if the if your results don't go the right way, you'll be under pressure And it could derail The otherwise strong strategic progress of the company So so we As patient investors executives, and I hope I said we're there for the company To go public or fund whatever form solution that that may be suitable for them Whenever is the time For that company so that it's not us the investors who are dictating a pace of what the company does Now it's always interesting to ask investors what future industries technologies, etc Are on the rise in the future If we pick like a Five-year timescale, what do you think I think you touched on this a bit earlier You said data paraphrasing your data and machine learning will change everything Will it even change a slice to bread? What do you think like everything will everything changed With data and AI what technologies do you see on the rise? Yeah, look, um, I don't know about the slice of bread, but there definitely are some some interesting companies doing things like vertical farming fruit tech ag tech And et cetera and You know more environmental ways of producing food except for so that that is a big industry for sure I think You know necessarily there are some things in the physical world like a real estate building is a real estate building right that you know, there are physical things and there are there are Product services which exist in the digital realm and so what we're really talking about is how the digital realm Supports the physical realm or the digital realm in and of itself And that digital realm has just exploded if you if you you know, you kind of walk back across the technology The first thing that that made a big difference was the internet You know telecoms and the internet and and that was the you know the earlier waves of soft bank groups investment through the 80s the 90s and the 2000s was around telecoms Which created the infrastructure for the internet to exist Mobile phones to exist and then the rollout of the internet and the speed of the internet getting faster That enabled the services. I mean if you had a aol dialogue um internet in the 1990s You wouldn't be able to do this call. It wouldn't work. You wouldn't be able to You know, you barely would be able to send an email You wouldn't that you wouldn't be able to use certainly your you know, your instagram or your youtube or your facebook Whatever it may be and so First the rail set to be created that enabled all of these amazing services to run on top of it And then we had the smartphone Which came in I'm going to say 15 years ago But I think it was maybe even more recent than that but you can't imagine the life now with you know Before the iphone even exists, right? So we had first the iphone then we had the iphone And as the smartphone has got more powerful The the breadth of services and the amount that amazing things it's provided to consumers and business service Who who who can just do fundamentally different things whether it's Finance whether it's health tech whether it's hailing an uber You know rather than having to hail a taxi on the street and and you name it running your banking on revolution Whatever it may be there any businesses to send it the amount of Just change disruption quality of service quality of life that things can people can do Either for free or at a much lower and affordable cost than was imaginable previously And and then you've had on top of that the more recent way which is ai data and machine learning is really maximizing optimizing the quality of those businesses that can run on those rails And the really amazing thing is that as you gather more data You can always optimize what you do you can optimize the service you're providing to businesses consumers As a result of more and more data And then the computers themselves running the algorithm to compute how to you know, how to analyze the data better and make You know make Superior calculations on the future inputs to that and and that's really what machine learning is all about so That is we see infusing pretty much every industry because whoever you talk to and that could be Also companies in the traditional sphere, right large listed for the 500 companies footsie companies Are also implementing data and machine learning into their practices. It just so happens that It's a smaller part of their businesses Whereas the younger Disruptors can have it at the heart of what they do and that often allows them to do things fundamentally differently So I just actually looked it up. It's 14 years and four months ago. That was right on the money, anthony there first iphone That's brilliant. Yeah, what would you have guessed guys? I would have said shorter. I must say I would have said like 12 years, maybe 13 years. Yeah Yeah, I should have said I should I would have said 14 months I have I had all the I could have been dishonest here and just made myself look Yeah, what do you think? What would you have gone with honor? I think a little bit less as well. Yeah, but around that time, but that was a great guess. Yeah Hey, this has been a pleasure. Thank you so much This has been yeah, really interesting to hear but your soft bank is of course such a big player in the field and What you decide and where you go the industry Shifts towards as well. So it's been really interesting to hear how you how you see the development And interesting to hear that Europe is Really growing Yeah, we're very excited You know about in Europe in particular, but also globally the amount of innovations going on in tech I think that improved environment in the quality of companies that are being fueled by this aim data theme is Is a global phenomenon so around the world we're seeing seeing great opportunities and We're very positive and excited for the future Yeah, we're very committed in Europe and and thanks for the very interesting questions, you know, some of those never really thought about but you know, very definitely good for thoughts and Yes, it's good to know that everyone's very committed to this region Awesome. Thank you so much. Thank you so much. Nohoko and anthony and thanks for listening to this episode. Uh, remember to comment Subscribe like all these things Whether or not you're watching this on youtube or listening just on spotify or all the podcast apps We'll see you later next week. Thank you very much. Bye. Bye. Thank you