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SoftBank Capital to Wind Down as Nikesh Arora Shifts Investing Strategy

Arora wants to move toward fewer, but bigger, investments in more mature businesses.

Asa Mathat
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

Nikesh Arora is putting his stamp on SoftBank Corp. as its new president, and its venture arm is feeling the impact.

The Japanese investment giant, led by CEO Masayoshi Son, is winding down SoftBank Capital, its venture division, as Arora moves the company away from making a bunch of small bets on early-stage companies toward bigger investments in fewer, but more mature, businesses.

At a high level, the strategy shift means the 20-year-old SoftBank Capital investment arm will not raise any new funds going forward and that future SoftBank investments will come for the most part from the balance sheet of the parent SoftBank Corp.

The shift comes as Arora, a former high-powered Google executive, looks to focus SoftBank Corp.’s investment strategy on acquiring large minority stakes in breakout privately-held businesses and backing them through a sale or IPO. SoftBank Corp. recently invested $1 billion in Korean mobile commerce company Coupang and has invested hundreds of millions of dollars in Indian e-commerce company Snapdeal and Uber competitor Ola Cabs.

“As we look at the future for the next tens of years, we believe that the way to preserve the long-term sustainability of SoftBank is to be large minority shareholders of many assets,” Arora told Re/code in an interview.

“We believe that it’s less crowded in the large-check marketplace,” he added, “and it’s a smaller universe of companies we have to understand and support.”

While SoftBank may occasionally invest in early-stage companies in the future, Arora said that would be “more of the exception than the rule.”

The changes at SoftBank Capital include a few moving parts:

First, SoftBank Capital’s early-stage team, whose best bets included Huffington Post, Buddy Media and BuzzFeed, will not raise any new funds and will not make any new investments out of its $100 million 2014 investment fund, partner Joe Medved said in an interview. The fund will, however, continue to make follow-on investments in current portfolio companies raising new rounds, and its partners will continue to serve on the boards of their portfolio companies.

A second SoftBank Capital fund, which does later-stage investments such as Fitbit and Criteo, has invested — and reserved for follow-on investments — all of its $250 million fund. Its team, led by partner Steve Murray, will continue to make follow-on investments in current portfolio companies where appropriate and serve on company boards of directors, he said.

A third, and separate, SoftBank Capital fund focused exclusively on investing in New York startups is the exception in that it will continue to make both new investments and follow-on investments. But the fund, managed by Jordy Levy and Josh Guttman, will likely rebrand to a non-SoftBank name. That fund has about half of its money remaining for new investments, according to a source. The fact that this New York-specific fund was not bankrolled by the SoftBank parent company is at least part of the reason this fund will continue to make new investments while the broader $100 million early-stage fund will not, this person said.

With the changes, SoftBank Capital will transfer management and administration of its 2010 and 2014 early-stage funds to Lerer Hippeau Ventures. The two firms know each other well, having co-invested on somewhere around 40 percent of the deals in the two aforementioned SoftBank Capital funds. Managing Partner Eric Hippeau was also previously a managing partner at SoftBank Capital before joining its portfolio company Huffington Post as CEO.

Lastly, well-regarded SoftBank Capital partner Marissa Campise is relocating to the West Coast to work on the bigger investments under Arora.

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