Softbank’s Lydia Jett on Investing in 2019
The SoftBank Vision Fund is one of the world’s most powerful late-stage venture capital firms. Its parent, SoftBank, has been around for 25 years, founded by Masayoshi Son in hopes of taking U.S.-based software companies to the international stage.
Nowadays, Lydia Jett is the first investment female partner of the Vision Fund. When she first started working with SoftBank in 2015, Masa was very excited about a wave of innovation that he felt surpassed all others in human economic history. “He saw this proliferation of devices, the aggregation of data, and the ability to utilize that data to accelerate trends,” she said, “He believes this is a moment in time to fundamentally disrupt the biggest industries across the globe using technology and data to make everything more efficient.”
According to Jett, Masa believes through making everything more efficient, he can put resources to better use, making people happier. “He is fundamentally trying to improve human happiness through technology investing,” Jett said. Currently, she sits on the boards of global companies such as Coupang, Fanatics, Fetch Robotics, Flipkart and Tokopedia, and invests in consumer companies in the e-commerce space.
At a recent Fireside Chat with F3’s founding partner Anu Duggal, she shared some insight about today’s investing climate based on her experience as a growth-stage investor.
On investing in companies with a proven track record.
The idea is, once Jett starts working with a company, it has already proven its business model to be effective, proven consumer demand, and proven a path to unit economics. Other growth funds might want to help each business continue on their current trajectories, but SoftBank wants to take these companies globally and help founders think about other lines of business could use the same asset base you have. “Essentially, SoftBank Vision Fund accelerates growth,” Jett said.
On the investors who fund the Vision Fund.
Jett said she likes to describe SoftBank as “the most over-capitalized startup in the world,” because the team still has to prove itself to the six or seven investors who fund it. “We do want investors that are aligned with us from a very long-term-thinking perspective,” she said. “What we’re trying to do is quite different, this is not a pre-IPO fund, we’re not investing in assets to flip them into the public market in 18 months. So we want people who are willing to take a long-term journey with us, but we’re at the beginning.”
On staying involved with portfolio companies post-investment.
Jett currently has seven portfolio companies that she described as complex, “sometimes with multiple business lines.” Because of the nature of her companies, she probably spends “north of 60%” of her time working with them instead of investing in new ones, “because the starting supposition of making an investment is that we can add value.” The SoftBank team helps their portfolio companies raise capital, enter new markets, and launch new business lines, among other things, so Jett only invests in 1–2 companies per year.
On the companies in her portfolio.
“For me personally, I have invested in a handful of global e-commerce horizontal platforms, so Coupang in Korea, which is effectively the Amazon of Korea, Tokepedia in Indonesia, Flipkart, and handful of companies in the U.S. that are smaller,” Jett said. “I typically do consumer, and that tends to be e-commerce, fintech, and a little bit of robotics.”
On the idea of “overcapitalization.”
Jett says she thinks about the concept of overcapitalization every day. “My professional career sitting in traditional investing roles for 17 years would tell you that overcapitalization is a really bad thing for companies generally speaking, but I am trying to push myself every day to be more open-minded,” she said, thanks in part to Masa. “When you are investing at valuations that are very high, you have to believe that there is a significant market ahead.”
On avoiding conflicts of interest.
The SoftBank team tries not to invest in companies that could be considered conflicts of interest, but since the investment team is over 100 people, sometimes conflicts are unavoidable. “Sometimes companies move into each other’s space,” Jett said. “Sometimes, we’ll invest in a company we don’t perceive as being a conflict, but given the pace of business model innovation companies end up going head to head. We do a good job of putting up walls internally, so I won’t know about the competing asset and neither will my counterpart know much about my asset.”
On why her portfolio skews towards Asian companies.
“There’s an extraordinary density of humanity [in Asia] with an infrastructure skipping a generation that allows people to adopt core technology that isn’t being adopted here yet,” Jett said. “We care about assets that can grow to be $10–20+ billion assets. Those require very big markets, deep consumer pockets, agile teams, and the ability to deploy capital. We’re very opportunistic about where in the world that happens, but certainly valuations look better in other places.”
On diversifying SoftBank.
At Jett’s last team dinner, there were only two men present. “That’s just my small sliver of the organization,” she said, where she tries to hire as many women as she can. “I think the unconscious bias that is pervasive everywhere else is pervasive at SoftBank and so it’s why it’s so important to me to bring in more women and make sure we are supporting them, providing mentoring and coaching etc.”
On the two things companies need before she’ll invest.
Jett said successful companies tend to be good in two different ways: “the execution capability of the team, and building efficiencies or moats through your technology investment.” If companies are comfortable in these two areas, they’re a candidate for a SoftBank investment. They’re not always the companies that seem like the best candidates in the CEO’s mind. “We are also focused on supporting companies that have nailed a unique business model in their home market, which could be extended to Asia where Softbank has extraordinary distribution capabilities” Jett said.
On what the public gets wrong about SoftBank Vision Fund.
Even though the media often reports on SoftBank companies’ high valuations, Jett says that she thinks the fund can be “surprisingly value-sensitive.” Ironically, the company often wins deals at lower valuations than other VC firms by virtue of the value it adds to companies. “The thing we don’t talk enough about, which is the reason I believe SoftBank is going to be very successful, is the extraordinary strategic and operational support we can offer companies — supporting companies to do things they never thought possible.” As an example, she described a company in India that was doing very well, so Masa encouraged the CEO to expand to China. “Within six months, [that CEO] had a business in China that was bigger than his business in India,” Jett said. “What we do that is fundamentally different from anyone is we really push people on a more aggressive strategy when it comes to internationalization or pushing a platform horizontally.” In other words, she and her team encourage founders to think bigger.