SoftBank, Fortress and the Vision Fund

Acquired dives into the topic on the minds and lips of just about every VC and founder these days: SoftBank’s $93B+ Vision Fund, and its seemingly-overnight rewriting of the rules of venture capital and startup fundraising. Where did this new 800lbs gorilla come from, what are its goals, and what does it mean for the future of silicon valley and the global tech ecosystem? The answer, it turns out, starts with an acquisition, and unfolds into a story no one has yet told and few yet understand. Luckily our heroes are on the case! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Links: Masayoshi Son on Charlie Rose https://www.youtube.com/watch?v=1lDVzn5ikn8Carve Outs: Ben: eBoys https://www.amazon.com/eBoys-Inside-Account-Venture-Capitalists-ebook/dp/B000FC1HTG/: The First Inside Account of Venture Capitalists at WorkDavid: Liu Cixin’s Remembrance of Earth’s Past trilogy (starting with The Three-Body Problem https://www.amazon.com/Three-Body-Problem-Remembrance-Earths-Past-ebook/dp/B00IQO403K)Bonus: shout out to Brian McCullough’s new podcast the Ride Home https://itunes.apple.com/us/podcast/techmeme-ride-home/id1355212895?mt=2, in partnership with TechMeme!

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Rosenthal?

  I don't know. I don't know if it's 2 and 20 or lower.

• 0:03Ben Gilbert?

  Yeah.

• 0:03David Rosenthal?

  But even if it's lower, it's just such a huge amount of money that like,

• 0:07Ben Gilbert?

  Well, it feels like you can pay some associates with it.

• 0:09David Rosenthal?

  I have a lot of thoughts here.

• 0:23Ben Gilbert?

  Welcome to season two, episode four of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

• 0:32David Rosenthal?

  I'm David Rosenthal.

• 0:34Ben Gilbert?

  And we are your hosts. Today, we are covering an acquisition that has forever changed the world of venture capital, private equity, and emerging technology companies forever. I think I said forever twice there. SoftBank buying Fortress.

• 0:48David Rosenthal?

  It's still forever. It's doubly forever.

• 0:50Ben Gilbert?

  It's double forever. And of course, the subsequent creation of the SoftBank Vision Fund. And we will tie up the connection between those two things. But before we dig in too far, David, I just need to say congratulations on the big news this week with the formal announcement of Wave Capital.

• 1:08David Rosenthal?

  Thank you, Ben. Thank you, Ben. It's nice to, as one of our listeners pointed out in the Slack, not have to be totally coy about what I'm doing anymore.

• 1:18David Rosenthal?

  We're excited and it'll be fun to build Wave over the next couple of years. Who knows? Maybe in, you know, a couple of years, we'll be bigger than SoftBank. That is not the vision here. See what I did? See what I did? Not the vision.

• 1:30Ben Gilbert?

  It's not. It's not the vision for your fund. No. Awesome to, you know, have that news be out and I'm sure you'll have lots of good opportunities to use that perspective to pepper in good thoughts for future episodes of Acquired.

• 1:42David Rosenthal?

  Indeed.

• 1:43Ben Gilbert?

  A little bit of business before we, we move into the show. If you're new to the show, you can check out our Slack at acquired.fm. I just checked and we're over 1,200 people. So come join us and talk about any big tech news that's going on, suggest episodes for us, and chat with other people who listen to the show. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you prove that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 2:17David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 2:38Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 3:00David Rosenthal?

  In half! Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 3:18Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you. So David, the SoftBank Vision Fund.

• 3:49David Rosenthal?

  Well, first off, what is SoftBank?

• 3:53Ben Gilbert?

  So SoftBank, if there's one big takeaway from the episode, SoftBank, not a bank. It is a conglomerate, a Japanese conglomerate founded in 1981, mostly focused on telecommunications businesses and actually originally a PC software distributor in Japan.

• 4:10David Rosenthal?

  Indeed. We might just get into that.

• 4:12Ben Gilbert?

  We might, we might. So they're gonna buy Fortress, we're gonna talk about that. They just started this Vision Fund. Presumably you've heard people talking about the Vision Fund. I'm sure down in Silicon Valley that occasionally comes up.

• 4:25David Rosenthal?

  You know, it's not really a big, no, actually, this is like the only topic here. You can't go like, you literally cannot walk into a coffee shop in San Francisco or Silicon Valley without hearing somebody talking about the Vision Fund and SoftBank and its iconic founder, Masayoshi Son.

• 4:42Ben Gilbert?

  And SoftBank, is this just relevant like to you as a VC? Is this like, do you hear other folks talking about it? Does it have repercussions outside of just being a venture investor?

• 4:53David Rosenthal?

  Well, so the Vision Fund is currently $93 billion, can go up to $100 billion. It is the largest fund ever raised by anyone in the history of mankind across the entire world, and largest by a factor of like five.

• 5:12David Rosenthal?

  This is literally not just the largest venture fund, but pretty game changing in the entire investment world.

• 5:18Ben Gilbert?

  You may have heard of SoftBank in this recent news of the tender for Uber shares. SoftBank just bought 15% of Uber. They've also made multi-hundred million or billion dollar plus investments into WeWork, DoorDash, WAG, Slack, and all very, very recently. Like, these deals are happening fast and they're huge and they're changing everything.

• 5:40David Rosenthal?

  Which is why we're here on the scene. And it just so happens that a key part of all of it was an acquisition.

• 5:45Ben Gilbert?

  If we want to really pat ourselves on the back for timing, which we really can't do. We actually have a content calendar now and we don't know when these things are gonna happen. But SoftBank did just announce that they are moving Fortress and the Vision Fund under one roof. They just announced that this past week. And so today on Acquired, we will rewind history and cover the acquisition of Fortress and how that plays into this whole Vision Fund thing.

• 6:10David Rosenthal?

  Should we do it?

• 6:11Ben Gilbert?

  Let's do it.

• 6:13David Rosenthal?

  All right. Well, we're doing a little bit of a switch up on history and facts here. We are, we are gonna cover Fortress a little bit farther on, but since this is the SoftBank Vision Fund, you really can't talk about any of this without starting with SoftBank. But first, it's really iconic founder who isn't as well-known in the US and the West as, as he should be, although that's changing quickly. But Masayoshi San, or Masu as he goes by, he's a pretty interesting character. So he was born in 1957 in Japan, not in Tokyo, but on the island Kyushu in the south of Japan.

• 6:55David Rosenthal?

  His father was a fisherman and they were relatively poor. The family, they were Korean immigrants in Japan. So Masu's grandparents were all Korean and immigrated to Japan. That was not a great situation in Japan. Japan has always had a very complicated relationship with both Korea and China. When Masu was growing up, the Japanese government actually mandated that all Korean families in Japan had to change their surnames to be Japanese. So they had to essentially like reject their identity. And this happened when, when Masu was, was young. So this family changed their name from their surname from San to Anmoto.

• 7:37Ben Gilbert?

  Real quick, David, is this like a thing that you knew about culturally before doing the research? Or is this a part of your research process?

• 7:44David Rosenthal?

  No, I did not know this beforehand, but Masu talks a lot about this. So this was like really informative to him. There's a great, we'll link to it in the show notes. He goes on Charlie Rose a couple of years ago. Charlie Rose is a little bit of a controversial character himself now with some of the sexual misconduct allegations. But this interview with Masu is really great. He talks about his childhood and how much it shaped him. So through all of this though, even though growing up, you know, son of a fisherman in rural Japan and the island, his parents really encouraged him and told him that he was gonna be great. And he was really precocious. He was gonna do great things. When he was a teenager. There was a guy in Japan who was the president of McDonald's Japan. And he had written a book, a business book, and Masa got ahold of it.

• 8:28David Rosenthal?

  He read it and he was super inspired. He decided he had to meet this guy. And so he started calling his office, got ahold of his secretary and kept calling like time and time again, saying, I need to come, I need to meet with him. And he said, you know, the secretary said, no, you're not going to meet with him. Finally, Masa flies to Tokyo, just shows up in the office to meet with this guy. It says, I'm not going home until I get to meet with him. He does, he's 16 years old at the time. Finally, the guy says, all right, I'll let you in. I'll give you 15 minutes.

• 8:59Ben Gilbert?

  It's a war of attrition.

• 9:00David Rosenthal?

  Literally war of attrition. And he, and this guy tells him two things. Masa asked for his advice, you know, what would you tell me as a young 16 year old here in Japan? He gives him two pieces of advice. He says, one, learn English and two, study computers and computer science because that's the future.

• 9:17Ben Gilbert?

  Which is advice that you get today, not advice that you would have gotten, what, in the 60s and 70s?

• 9:23David Rosenthal?

  This would have been the mid 70s.

• 9:26Ben Gilbert?

  Wow.

• 9:28David Rosenthal?

  Pretty crazy. This guy was, was pretty prescient. Masa, as you can imagine, knowing this little bit about him so far, he not only takes the advice to heart, within like weeks, he moves to the US. His family has no ties to the US and moves to the Bay Area, ends up finishing high school in the Bay Area, goes to university here. He goes to, he does two years at a college called Holy Names University. And then he transfers to UC Berkeley where he majors in economics and computer science. So he's just going and, and it's all of this is because he wants to follow in this guy's footsteps. He wants to be a businessman. He wants to start companies. So while he's at Berkeley, after he transfers there, he does two things. One, he convinces one of his professors to start a company with him.

• 10:13David Rosenthal?

  It was a physics professor and they make an electronic translator, the language translator. And then they sell it within a year to the Japanese conglomerate Sharp for $1.7 million. Remember, this is back in like the late 70s, so.

• 10:27Ben Gilbert?

  And a student, like what an awesome thing to do as a student.

• 10:31David Rosenthal?

  Yeah, I mean, a couple of years ago, he was, you know, in a fishing village in Japan. And then the other thing he does during this time, partially with the proceeds from that sale, he starts importing Space Invaders arcade machines from Japan to the Bay Area and to the Berkeley campus. And supposedly, according to Masa, he makes about one and a half million dollars from.

• 10:54Ben Gilbert?

  Presumably more money than his share of the sale.

• 10:56David Rosenthal?

  Yeah, totally, totally. This totally reminded me of, of Tony Hsieh and Alfred Lin and the Zappa story and selling pizza. Pretty crazy. So by the time Masa graduates in 1980 from Berkeley, he's already a multimillionaire. And so he decides he's going to go back to Japan. In the interim, he actually, first, he starts another company called Unison that gets acquired quickly by Kyocera, which I believe is a Korean company. Unclear how much money that one was for. Masa doesn't talk about that one. But he decides he's going to come back to Japan. He's made, you know, a little bit of a mark. He does, does two things, decides two things. One, he's going to change his last name back to San.

• 11:41David Rosenthal?

  He's done with the, you know, Japanese name that his family had adopted. He wants to, he talks about this. He wants to, he feels like he's living a, you know, false life. He wants to be himself, be his true identity and be known as, you know, for what he is. And two, he decides, I'm going to start another company, but this one is going to have an enormous impact. So he moves back home. He literally lives at home, lounges around for about six months or so, and decides to start a company and calls it SoftBank. Why SoftBank? His business plan, what he wants to do is he wants to be a distributor of software in Japan. And this is back in the day, you know, software, you know, there are no CD drives,

• 12:23David Rosenthal?

  like these come in packaged boxes that you buy in stores.

• 12:27Ben Gilbert?

  You know, in a zero distribution cost world, we tend to devalue distributors in our heads. Like that doesn't strike you as a huge business. That was an essential part of the value chain that was, there are a lot of economics in there in a pre-internet world.

• 12:40David Rosenthal?

  Yep. Without distributors, without retail, and without B2B distribution of software on floppy disks, probably like not even the three and a half inch floppy disks, probably the big, truly floppy disks at this point, you can't get software onto your PCs. So he starts that, and he also realizes that part of succeeding in distribution is you also have to be in the publishing game, not just publishing software, but actually publishing content so that people discover software and want to buy it. So he starts publishing PC magazines, first in Japan, realizes that that's actually a really interesting business itself, and that goes pretty well. And he decides he

• 13:24David Rosenthal?

  wants to start to expand. And he wants to get, in particular, he wants to get back into the US where he was educated and knows how much innovation is happening in software there at the time. So he does, we're now into the mid 90s. He does two things. First, he buys Ziff Davis, which was the publisher of PC Week and a whole bunch of other stuff. I totally remember reading these magazines back in the day. So SoftBank acquires Ziff Davis, and then he also acquires-

• 13:54Ben Gilbert?

  Comdex?

• 13:55David Rosenthal?

  Comdex, yeah, an organization called Comdex, which was like the-

• 13:59Ben Gilbert?

  That was the computer show.

• 14:00David Rosenthal?

  Yeah, it was the computer show.

• 14:01Ben Gilbert?

  If you were into computers and you were a distributor or a creator, like, if you're actually, have you seen Halt and Catch Fire, David?

• 14:09David Rosenthal?

  No, I've heard it's so good.

• 14:12Ben Gilbert?

  It's awesome. One of the big moments in the show is the first demo at Comdex. I think this predates both you and I, but if you were into computers in those days, that was where you went to check out all the new stuff.

• 14:23David Rosenthal?

  Totally. Yeah, like the South by Southwest, or what have you of its day.

• 14:30Ben Gilbert?

  CES, E3, yeah.

• 14:31David Rosenthal?

  Yeah, all of it rolled into one. It was all there was in the tech industry, because it was all PCs. So he's now got this empire going, and this is the mid 90s. He's starting to see the internet is coming too.

• 14:42Ben Gilbert?

  And let's shape this empire. It's a little empire of PC distribution and media and events about PCs.

• 14:49David Rosenthal?

  Yes. In Japan and now in the US, he starts to see that the internet is coming and there's going to be a big opportunity to invest in lots of companies that are going to create new businesses on the internet. So what does he do? He starts a VC firm, a US venture capital firm, under the SoftBank name, and he hires, brings on a few partners to be the partners and investors locally in the US at this VC firm. Do you know, Ben, who one of those partners was?

• 15:22David Rosenthal?

  Brad Feld of Foundry Group. And listener Brad is, Brad is of course at Foundry Group, and Foundry's an investor in PSL and Wave as well. And

• 15:36David Rosenthal?

  So Mobius, which was the firm that he was, that he started before Foundry Group, and where most of the Foundry Group partners had worked together at Mobius before, that was basically a spin out from SoftBank.

• 15:51Ben Gilbert?

  Ah, got it.

• 15:51David Rosenthal?

  And a number of them had first started working together at SoftBank.

• 15:55Ben Gilbert?

  Got it, got it.

• 15:56David Rosenthal?

  And I believe Brad can correct us here, but I believe Brad's first company that he started in Boston, out of MIT, was a software publishing and distribution company. And I believe SoftBank acquired it, and then that's how he got in into VC.

• 16:12Ben Gilbert?

  We'll have to have Brad on the show and give us some of this history. That's awesome.

• 16:16David Rosenthal?

  Totally. So fun aside, so they start this US VC firm, and these are the go-go years of, you know, the late, mid to late 90s internet. Both the US VC firm and SoftBank itself, corporate, invests in tons of companies. They end up taking stakes in about 800 companies across the world. And one of those companies is Yahoo. So Masa, when he's in the US at one point in time, he ends up meeting Jerry Yang, right as they're getting started. And SoftBank invests a small amount in Yahoo. I don't know if it was alongside Sequoia, or before or after, but they become a major shareholder in Yahoo. They end up investing about $350 million in Yahoo.

• 16:59David Rosenthal?

  And at the time of the IPO, SoftBank is the largest shareholder in the company.

• 17:04Ben Gilbert?

  And they, and they started Yahoo Japan, right?

• 17:07David Rosenthal?

  And together, yeah, Masa goes and proposes to Jerry. Yahoo, what you're doing in the US, like you need to do that around the world, too. Why don't we start Yahoo Japan together? So they do that as a joint venture. It becomes hugely valuable, ends up IPO-ing in Japan itself and is a huge win for SoftBank. So you can start to see like some of what they're doing with the Vision Fund. It's kind of like what's old is new again. They've been doing this all along. They actually, they approach Amazon. They want to do the same thing with Amazon, apparently. And Bezos rejects them because, because Masa and SoftBank want too much of the, of the JV, of the combined company in Japan.

• 17:45Ben Gilbert?

  It strikes me that, that Bezos says, what do you mean? That's my opportunity.

• 17:49David Rosenthal?

  Yeah, exactly. Exactly. So this is crazy. And I knew, I knew a little bit of this history before I started diving in and doing the research, but this actually is shocking. So this is all going, you know, so well during the, during the internet bubble. For a brief moment, Masa actually becomes the wealthiest person in the world. He passes Bill Gates. SoftBank's market cap goes up to almost $200 billion. And they've got the stakes in all these companies.

• 18:18Ben Gilbert?

  Bubbles do crazy things to non-liquid stock.

• 18:22David Rosenthal?

  Indeed, indeed. And so apparently he's like vying with Bill Gates through all this to be the world's wealthiest person. Bill comes over and visits him in Tokyo and Masa had built, this is, he tells the story on Charlie Rosen elsewhere. He had built in his house, in his mansion in Tokyo, a golf simulator in the basement. That was like so, not just like a, you know, like video golf, but like had simulated sea breezes and like ocean scents. Like all this stuff and simulated light. And apparently Bill Gates is like blown away.

• 18:58Ben Gilbert?

  I mean, this is the point in Bill Gates's life where it was like famous that he had the pictures that change on his walls.

• 19:04David Rosenthal?

  Yep.

• 19:05Ben Gilbert?

  Like that's, that's right up his alley.

• 19:07David Rosenthal?

  Yep. Unfortunately though, for Masa, shortly after he passed Bill, the bubble burst. And then Masa gets another infamous distinction. I believe this is still the case.

• 19:22David Rosenthal?

  As a single person, lost the most amount of money that anyone has ever lost in history. So his personal wealth, within a matter of weeks during the bursting of the internet bubble, fell by 70 billion, 7-0 billion.

• 19:38Ben Gilbert?

  Oh my god.

• 19:40David Rosenthal?

  In 2001.

• 19:41Ben Gilbert?

  It's like the GDP of a small country.

• 19:43David Rosenthal?

  Yeah, totally, totally. It's like, you know, 7/10 of the Vision Fund.

• 19:51David Rosenthal?

  But he learns a couple of things from that. And, you know, ever the resilient individual, he's kind of more determined than ever to come back. But what he learns is that, and what he decides after that, is that cash flow and profits are very important in businesses. I mean, notoriously, part of the problem with the whole internet bubble was like, there wasn't even, certainly not cash flow, not even revenue at a lot of these companies. And so Masa kind of learns the lesson. He's not going to do that. He decides to pivot SoftBank at this point, away from just being a software and company and tech investor, into more infrastructure. He gets really interested in infrastructure because

• 20:32David Rosenthal?

  he's, he sees the sort of attractive cash flow dynamics of it. And specifically, what he does is he gets into broadband in Japan. So this is when broadband is like, you know, becoming a thing and people aren't using dial-up anymore. And Japan was particularly advanced.

• 20:49Ben Gilbert?

  And we should say, one other thing that happened during this time in 2000, still kept doing some early-stage investing. And one of those investments was a $20 million.

• 20:57David Rosenthal?

  We're coming to it.

• 21:00David Rosenthal?

  We're coming to it. Cliffhanger, cliffhanger. He doesn't, he doesn't stop the investing. But so he gets into broadband, he buys Japan Telecom, and then starts investing in broadband, sees that, I promise I'm going to come back to the investing in a minute. But, but this is actually, I think, an even better story. He starts seeing that mobile is going to be the future. And this is the thing about, about Masa, like, he's very bold, but he's always thinking like, a couple of years in advance. So like, mid 2000s, Japan, you know, mobile telephones are much more advanced than anyone. Where else in the world, but it's still not like what we think of as mobile today. It's kind of like halfway there. He decides that mobile's the future of the internet. He wants to get in on it. And what's the best way to do it?

• 21:43David Rosenthal?

  He thinks he needs, uh, he's not in mobile at all. He's only in wired broadband at this point. He thinks he needs like a game changing really device to do this. So he flies to the US and he meets with Steve Jobs. This is in like 2005, 2006.

• 22:00Ben Gilbert?

  What?

• 22:01David Rosenthal?

  Yeah. So Masa, he's thinking about how he can enter the mobile, you know, telephone world. He decides that he needs a game changing device. He decides the only person in the world who could develop such a device would be Steve Jobs and Apple. So he comes over, he meets with Steve. This is like oh, five, oh, six. Apparently he brings a drawing that Masa himself had, had made a drawing of an iPod with a phone in it. It's like, apparently like the Tony Fadell version of the, uh, the iPhone.

• 22:32Ben Gilbert?

  No way. He did that. He made the P1.

• 22:34David Rosenthal?

  He made the P1. He comes, he sits down with Steve. He meets with him and he's like, I want to get into mobile. I need a great device. You should make it. I have a drawing for you.

• 22:45Ben Gilbert?

  Apple's into like in the midst of this head to head internal competition. What 12 months away from launching the iPhone?

• 22:52David Rosenthal?

  Totally. And, uh, and Steve apparently laughs and he's like, I don't need your drawing. Like, you think we're not working on this?

• 23:01David Rosenthal?

  And Masa's like, fine, I don't care. Like, if you make this, I want to be the first. And Steve's like, this is hilarious. You know, nobody knows we're working on this, but we are. But because you came to see me and you said you had such a chutzpah to, you know, show me a drawing. I'll work with you on it. So, you know, let me know what you need, but you know, we need a mobile carrier. And Masa's like, I got it. Give me like a couple, give me like a year. So he goes back to Japan and he orchestrates a deal to buy Vodafone Japan, which is one of the largest, was one of the largest mobile carriers in Japan, like AT&T or Verizon or Sprint. But he doesn't have the money to do it.

• 23:40David Rosenthal?

  So he, he goes and he raises like $20 billion in debt financing from the capital markets. And in particular, he raises, I believe most of it from Deutsche Bank, from a guy named Rajiv Misra at Deutsche Bank, who's going to play, come back into the story in a little bit. He ends up buying Vodafone, knowing in his back pocket that when the iPhone does come out, he's got this handshake agreement from Steve to be the exclusive provider in Japan. That's in 2006. iPhone obviously gets announced in 2007, goes on sale in the US. And then in 2008, the newly renamed SoftBank Mobile, which was Vodafone Japan,

• 24:21David Rosenthal?

  becomes the exclusive carrier of the iPhone in Japan. And this like is huge. They triple their market share. Japan falls in love with the iPhone.

• 24:31Ben Gilbert?

  3D chess, David. 3D chess.

• 24:32David Rosenthal?

  Totally. Totally. All because of that drawing.

• 24:37David Rosenthal?

  So this is arguably, at this point, the greatest thing that's, you know, happened to SoftBank. Huge comeback from having had the infamy of losing more money than anyone else in the world. And then actually, later in 2013, he tries to get into US mobile carriers. They buy Sprint. So SoftBank owns Sprint here in the US.

• 24:56Ben Gilbert?

  And wholly, right? They're 100% owned subsidiary?

• 24:59David Rosenthal?

  I think at first, they bought like 73% or something like that. I don't know if they now own 100% of it, but they certainly own a vast majority of the stake. But there's this other little thing that happens over the interviewing years that Ben, you were referring to. And that was that all the way back in, it actually was in 2000, so it was before the tech bubble burst, Masa made one other of the 800 investments that he made. He put $20 million into a company in China called Alibaba in the year 2000.

• 25:33Ben Gilbert?

  14 years before they IPO'd.

• 25:35David Rosenthal?

  14 years before the IPO. So, fast forward to 2014, Alibaba goes public in, I believe, the largest IPO ever. Definitely one on our list that we're going to have to cover. And when that happens, that stake that SoftBank owns in Alibaba is now worth $60 billion in liquid, publicly tradable securities on the open market. And that really is a combination of all of these things. But I think it's really that that leads to the Vision Fund. All of a sudden, SoftBank has $60 billion that they've done in tech investing in liquid securities. And that happens in 2014.

• 26:18Ben Gilbert?

  Is my math right there? That that's a 3,000x return on $20 million?

• 26:24David Rosenthal?

  It's a uncalculable.

• 26:28David Rosenthal?

  And people talk about this as like, this may well be, lots of people reference this as the best investment of all time. When we did the, the Next acquisition, the Apple acquisition of Next, you know, we called it the, the best acquisition of all time that created a trillion dollars in market cap. I think that $20 million investment might be the single best investment anyone's ever made.

• 26:51Ben Gilbert?

  Hmm. Do you know if that's how the Yahoo Alibaba relationship got started? Do you know if there's a tie in here?

• 26:59David Rosenthal?

  There definitely is. So I didn't research the exact timeline. So I don't know if it was Jerry Yang who first met Jack Ma, or if it was Masa who first met Jack Ma and invested. But both of them, both Jerry Yang and Yahoo and Masa and SoftBank invested in Alibaba.

• 27:16Ben Gilbert?

  And that was famously a huge part of Yahoo's market cap when Alibaba went public was the, the Alibaba shares.

• 27:24David Rosenthal?

  Yep, yep. And a couple of years before Yahoo ended up getting sold off, they sold half of their stake in Alibaba before Alibaba went public at a much lower valuation than when they did go public.

• 27:40Ben Gilbert?

  You gotta have Masa's conviction to hold, man.

• 27:42David Rosenthal?

  Totally. I mean, this guy is like, like if it wasn't clear already, like, he's a pretty amazing character.

• 27:48Ben Gilbert?

  Not the oracle of Omaha, but the oracle in Japan.

• 27:50David Rosenthal?

  Yeah, he's like the Jeff Bezos and Warren Buffett of Japan, like, rolled into one.

• 27:56Ben Gilbert?

  Feels like a guy that should deploy $100 billion. I don't know.

• 27:59David Rosenthal?

  Well, if anybody can do it. So today, Masa is the richest person in Japan. And so he has accomplished his, that wasn't explicitly his goal, but when he started SoftBank, he wanted to make an impact. And he is the 39th richest person in the world. As of January, his personal net worth was estimated at about $22 billion. So still not the 70 that it once was, but still pretty amazing. After that IPO of Alibaba in 2014, they now have all of this capital. It's taken a long time, but they've been very successful at being investors.

• 28:34Ben Gilbert?

  One thing that is worth noting is they don't always work. Like, they bought Sprint, but Sprint hasn't hugely grown in value. They're good investors. You know, they, they also had a huge return on, on buying some Supersell shares and, and selling to Tencent. But Sprint isn't anything to write home about. It doesn't, it doesn't give you, you know, tens of billions of dollars on which to go and raise the largest fund in history.

• 28:55David Rosenthal?

  Nope. But if you have 60 billion of your own, that gets you a long way. So a couple of things. In 2015, they bring on a guy named Nikesh Aurora, and Nikesh had been an early Google employee, and he was the chief business officer at Google. So he was in charge of building all of Google's ad business over the years, and he was essentially head of monetization. They hire him away at SoftBank. He becomes the president and COO, and he's very explicitly like next in line to kind of take over for Masa when Masa retires. Masa's in his late 50s, early 60s at this point. Nikesh, and then they get, you know, they have all this, this capital now from the Alibaba IPO.

• 29:38David Rosenthal?

  Nikesh is originally from India before, before he came to the US. He starts investing in India growth companies. So like 2014, 2015, there was a big, well, in retrospect, really kind of bubble of tech startups in India, companies like Ola and Snapdeal and Flipkart.

• 29:56Ben Gilbert?

  Wait, did you just say Snapdeal and Flipkart, David?

• 30:00David Rosenthal?

  So SoftBank invested in Snapdeal but not Flipkart?

• 30:03Ben Gilbert?

  I think they actually did. So I think, I think kind of a crazy thing is, one thing they're willing to do is, is cut and run, or at least invest in a competitor. So Snapdeal wasn't going the way that they were hoping it would go. Later on, in the Vision Fund, in, in April of 2017, they put $4 billion into Flipkart.

• 30:20David Rosenthal?

  Oh, wow. Wow. But that was via the Vision Fund. Okay, so that hadn't happened just yet.

• 30:25Ben Gilbert?

  Right.

• 30:26David Rosenthal?

  Nikesh had kind of led investing in, in these companies in India.

• 30:30Ben Gilbert?

  Yeah, I should take that back. Maybe that's not fair. Maybe a better assessment is, you know, that was, it was a different entity, a different vehicle.

• 30:35David Rosenthal?

  Yeah, interesting, interesting. Although it is part of the Vision Fund's reputation now. And Nikesh, when they hired him, they paid him, his contract was, he got paid $200 million over two years. He was the highest paid executive in the entire world. You know, when Masa does something, he goes big.

• 30:55Ben Gilbert?

  David, it's not that much money because it's trunched out over multiple years.

• 30:58David Rosenthal?

  Yeah, two.

• 31:02David Rosenthal?

  But as you were alluding to, some of these India investments don't go so well, particularly Snapdeal. And the relationship kind of sours between Nikesh and Masa, supposedly for a bunch of reasons. And Nikesh actually leaves in 2016. And so now there's kind of this hole of Masa's, you know, still has this huge vision for SoftBank and investing, but the guy who was going to run it is no longer there. Now, flashback to right after, right around the same time as the Alibaba IPO, Rajiv Misra, who I had mentioned earlier, had been at Deutsche Bank and had helped orchestrate the debt financing for the Vodafone Japan acquisition.

• 31:43David Rosenthal?

  Masa had also lured him away and hired him into SoftBank as head of strategic finance.

• 31:50Ben Gilbert?

  Rajiv is from India but London-based, is that correct?

• 31:53David Rosenthal?

  Yep, based in London. Yep, also from India. And then Rajiv worked on what I believe was and still is SoftBank's largest acquisition, which was the UK company ARM Holdings, the designer of mobile phone chipsets, which ultimately got done in 2016 for $32 billion. So that was what Rajiv worked on for his first couple of years. And so kind of simultaneously, as Nikesh is leaving the company and Rajiv has just had this big success.

• 32:24Ben Gilbert?

  It's worth pausing for a moment there. It's interesting to look at pre-vision fund SoftBank, what they're doing in this era. They're really building out different pieces of the mobile value chain. So they've got the commerce layer with Alibaba. They've got the telecommunications layer with Sprint and with SoftBank Japan. They're buying the technology that is the design for the chipsets of every mobile phone today, all the way down to the hardware layer. It's a very clear play on, we want to benefit from every piece of the value chain on what we see as the future, and it is mobile.

• 32:56David Rosenthal?

  Yep. Well, it really gets back to that vision, which well, quote unquote, that Masa has after the bursting of the tech bubble of getting into infrastructure, getting into cash flow businesses. And you know, what are sort of like the Amazon tax? Like, what are the, what are the elements of this massive market for mobile? What are the elements of the value chain that are, you know, just as mobile grows are going to be taking a tax, you know, on the industry? And it's chip design, it's the carriers, it's commerce and Alibaba, it's all of these things. So they acquire ARM. And then immediately after that, another interesting meeting happens. Masa, so Masa and Rajiv are starting to think about, Nakesha's out, they're

• 33:39David Rosenthal?

  starting to think about like, how can we really systematize this investing that we're doing and really build something large? And Masa ends up having a meeting in 2016 with the deputy crown prince of Saudi Arabia, who's in charge of running Saudi Arabia's sovereign wealth fund.

• 33:59Ben Gilbert?

  That's an amazing title.

• 34:01David Rosenthal?

  The deputy crown prince.

• 34:03Ben Gilbert?

  I want business cards to say that.

• 34:05David Rosenthal?

  Yeah, totally. It's like the famous Mark Zuckerberg CEO business cards.

• 34:11Ben Gilbert?

  Which I don't think we can say on the show and keep our clean rating.

• 34:15David Rosenthal?

  No, I don't think we can, but you should go watch The Social Network if you haven't already.

• 34:21David Rosenthal?

  So Masa gets this meeting in Tokyo with the deputy, deputy crown prince. Apparently, it's a 45 minute meeting. And by the end of the 45 minutes, Masa has convinced the crown prince to invest $45 billion.

• 34:37Ben Gilbert?

  Yeah, that's how mine always go.

• 34:38David Rosenthal?

  A billion dollars per minute. Yep, yep, exactly. I mean, that's really how it went at Wave.

• 34:44David Rosenthal?

  Not quite. So by the end of this meeting, they have a commitment from the Public Investment Fund of Saudi Arabia to put $45 billion into a new technology and global technology investment fund that SoftBank is going to start and that Rajiv is going to run. And that's the beginning of the Vision Fund. So SoftBank itself commits $25 billion on top of the 45 from Saudi Arabia. So that gets us to 70, 70 billion.

• 35:13Ben Gilbert?

  That's a heck of a general partner commit right there.

• 35:16David Rosenthal?

  Totally.

• 35:18David Rosenthal?

  Yeah, we did the same at, no, not, not even close. And then they announced at the end of 2016 that they're going to create this fund, which is already the largest ever. They're targeting $100 billion for the total fund size. They do the first close in May of 2017. They bring on Mubadala, which is the sovereign wealth fund of the UAE. They bring on Apple, so Apple invests a billion dollars into the fund.

• 35:46Ben Gilbert?

  Sharp, I think, is another billion dollar investor.

• 35:49David Rosenthal?

  Investor, yep, as is Foxconn and Qualcomm as well.

• 35:54Ben Gilbert?

  Yeah, $3 billion from Qualcomm.

• 35:55David Rosenthal?

  Yeah.

• 35:56Ben Gilbert?

  I think Larry Ellison's family office. It's a pretty, pretty nutty lineup.

• 36:01David Rosenthal?

  It's, it's totally nutty. And so the first close is done at $93 billion. So they still can raise up to 100, but, but they have $93 billion that they've closed on. As I mentioned at the top of the show, this is like, like the largest fund ever raised in any other asset class, private equity, hedge fund, real estate, what have you, is like $20 billion. So this just blows it out of the water.

• 36:24Ben Gilbert?

  And it's worth thinking through too, like seed funds will be, you know, 30 to 100 million. You'll have your sort of early stage funds that can typically or traditionally go up to 200, 300 million. You've got these, these funds that go across stages that, you know, people, three years ago, were talking about how quote unquote crazy it was that you were having these new billion dollar venture capital funds. And, you know, your Andreessen Horowitzes and your Sequoias, and then this happens. Even when, if you look all the way up at huge private equity firms like KKR, they manage 168 billion, but that's across a ton of funds. That's happened over decades and decades and decades of, of sort of building reputation and risk models and sort of an understanding of what the types of investments they're going to make.

• 37:07Ben Gilbert?

  I mean, this is, this is so unprecedented by an order of magnitude.

• 37:11David Rosenthal?

  Yeah. And the other really interesting thing, so the term of the fund, so what's in the charter of the fund for how long, what its time horizon is, is 12 years, 12 years plus a two-year extension. So up to 14 years for this fund to play out. That's, that's even longer than your typical early-stage venture fund. The typical early-stage venture fund is 10 years plus a one-year extension. So not only is this the largest fund ever raised, it explicitly has a longer time horizon than anything else. You know, private equity funds are usually five years. Hedge funds usually have like a one-year lockup and then you can remove your capital after that. So it's, it's both the largest and the longest

• 37:55David Rosenthal?

  fund, longest time horizon fund ever raised.

• 37:57Ben Gilbert?

  And here's why this gets really interesting. So their goal with the fund is to deploy it in, they want to make 70 to 100 investments, which puts your average deal size around a billion dollars. And so typically, like if we rewind in a world before the Vision Fund, you would have a long-ish lifetime for early-stage investing. But if you're doing mezzanine rounds, so, so buying some equity right before an IPO, hoping to get a 1.5 or a 2X markup, or if you're doing growth equity where you think a business maybe has two-ish, three-ish more years before a, a big exit, an IPO or an acquisition, those will be that, that sort of bigger check size, but you know, shorter life. They're making billion-dollar investments and they don't have to return the capital to their

• 38:42Ben Gilbert?

  investors for 12 years. Like this is very much changing the dynamic of what do big companies do as they mature and how are they capitalized to do that?

• 38:53David Rosenthal?

  Yep, totally. In the past, you know, historically, there's always been an inverse relationship between size of fund and stage of investing and time horizon. And they just went, completely turned that on its head.

• 39:06Ben Gilbert?

  What if we have a ton of money and we don't have to give it back for a while? How does that sound?

• 39:12David Rosenthal?

  Well, to a lot of people, it sounded pretty great.

• 39:15Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

• 39:29David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 39:44Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 39:53David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 40:11Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise: the workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 40:27David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 40:44Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 40:53David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. So we promised you that we would be covering the Fortress acquisition here. And again, apologies for the very, very long preamble to it. We'll get to it now, but I think it was super important to understand the context for all this. What happens in the interim between when they announce, make the press release essentially of the commitment from the Saudi Arabia Public Investment Fund and then when they do the first close, in between that, in February of 2017, SoftBank makes a really curious announcement.

• 41:36David Rosenthal?

  They announced that they're going to buy an investment firm called Fortress, which was a publicly traded private equity firm and hedge fund, a so-called alternative asset manager, and they're buying it for $3.3 billion. And everybody was kind of scratching their heads, like Fortress was and is a manager of multiple private equity funds, multiple hedge funds, multiple credit funds, debt funds.

• 42:02Ben Gilbert?

  They invest in things like mortgage servicing, subprime lending, real estate itself, transportation.

• 42:07David Rosenthal?

  Zero technology.

• 42:08Ben Gilbert?

  Yeah, not at all a technology investor.

• 42:10David Rosenthal?

  This is about as far away as you could get from technology and venture in the money management world.

• 42:18Ben Gilbert?

  They're kind of a second tier Wall Street asset management firm. They're kind of a middle, I mean, 70 billion under management. You know, it's a lot of money, but for the types of groups that they would be sort of competing with, they're not the marquee brand.

• 42:30David Rosenthal?

  No, they're, most of that 70 billion that they have is in fixed income credit funds. So these are, you know, think, you know, corporate debt, municipal debt, you know, government treasuries, that kind of stuff. And when you manage those, those types of assets, the management fees that you take on that are much, much lower. So, you know, a typical venture or private equity firm will take what's called 2 and 20, so a 2% annual management fee to run the business on the capital that they've committed. So if you have a billion dollars committed, you'll take 2% of that annually in fees and then 20% of the upside of profits that you make from your investing. And Fortress, for their private equity funds, had structures like that, but for the vast

• 43:14David Rosenthal?

  majority of their capital, it was much lower.

• 43:16Ben Gilbert?

  Makes sense. So that's why, you know, it's possible to have that 70 billion under management, but still get bought for what is a highly marked up 3.3 billion.

• 43:24David Rosenthal?

  Yep. So Fortress.

• 43:27David Rosenthal?

  Super interesting. Was actually, it was started in 1998, originally as just a private equity firm, by three former investment bankers, and then two others joined shortly thereafter. And this was in kind of the beginning of the private equity boom. And then Fortress has also the dubious distinction of they were the first large private equity hedge fund asset manager to go public.

• 43:51Ben Gilbert?

  Yeah.

• 43:52David Rosenthal?

  So in 2007, right before the financial crash, they go public. And then this kicked off a wave of KKR went public after this, Blackstone went public.

• 44:03Ben Gilbert?

  Which is a fascinating thing in itself, rightly. You have a firm whose responsibility is to manage other people's money and take a fee and profits off of those investments off the top that themselves are publicly traded as equities, either by retail investor or other funds who are buying shares in them, you know, as a basket of other things.

• 44:25David Rosenthal?

  It's nutty. And basically, it's been kind of decided at this point that any fund that would do something like this, like this is a really bad sign and a bad way to manage these companies. And there was a ton of drama with Fortress and with these other firms that did this, because essentially what they did, they took the quote unquote "management company" public. So if you're an investment firm, you know, if you're Madrona or Wave or, you know, KKR, whomever, it doesn't matter, they're all structured the same way. There's a management company, and that is what the people who started the firm, that's what they own. And the fees that we were talking about, those 2% annual fees on capital commitments, that's revenue that flows into the management company, and that's how the financials of these firms work.

• 45:11David Rosenthal?

  Now, if you take that public, or if you sell that company, then the fees that your investors are, in theory, paying the people who run the firm to run the firm.

• 45:22Ben Gilbert?

  Are actually getting divvended out.

• 45:23David Rosenthal?

  Are now getting divvended out to public shareholders. Like, the alignment is all messed up here.

• 45:29Ben Gilbert?

  Not to mention, if you're a shareholder in the management company, but the governance of the actual fund is... In any way allows it to make independent decisions. The fund could make decisions in its own best interest that the shareholders of the management company wouldn't actually get those cash flows. Now, I would assume upon going public, they needed to structure it in a way that that couldn't happen, but it is interesting that you're taking an entity public that is wholly dependent on the fees from another entity continuing.

• 45:59David Rosenthal?

  Yeah, well, yes, and what it essentially does when you do this, you've created a situation where the fee streams that are supposed to go to the people running the fund and making investments are now going somewhere else. And this is interesting. This is kind of what SoftBank and the Vision Fund have ultimately end up picking up on. If you go back to Mas's now vision of infrastructure, of cash flow, of guaranteed cash flow payments, like what is more guaranteed than a contractually locked up management fee that is going to happen for 10, maybe in SoftBank Vision's case, even 12 to 14 years? So when SoftBank acquired Fortress, everybody said, what is going on here?

• 46:42David Rosenthal?

  You know, SoftBank wants to be a technology investor, but they're acquiring this asset management firm. It doesn't make any sense. Well, flash forward, it takes a little while for the deal to close. There was a lot of regulatory scrutiny. It ends up not closing until the very end of the year in 2017, so just a few months ago. Then what happens, as we mentioned at the top of the show, just last week, in March 2018 now, SoftBank announces that they are creating a new division of the company called SoftBank Financial Services. Rajiv Mishra is the CEO. He's going to be running it based out of London. And in this financial services division, they are going to build, create, manage, and

• 47:27David Rosenthal?

  acquire multiple funds. So the Vision Fund, the $93 billion Vision Fund is put into this vehicle. All of Fortress's funds that they still have, they divested a few of them, primarily the large fixed income fund that we were talking about that was just trading in debt. The rest of those are getting pulled into this vehicle as well.

• 47:46Ben Gilbert?

  Which is about Forty billion, right?

• 47:48David Rosenthal?

  Which is about a little over forty billion. All told, this this new division, SoftBank Financial Services, has almost a hundred and forty billion dollars in capital under management, with a goal of doubling that in the next five years. And all of that capital is getting management fee streams and then eventually profit streams on on the value of the investments when they exit them.

• 48:14Ben Gilbert?

  Okay, so what we're here today on Acquired to talk about is SoftBank is most of the way. They've got seventy billion of their hundred billion already raised into the Vision Fund.

• 48:27David Rosenthal?

  No, ninety-three, ninety-three of the hundred, so.

• 48:30Ben Gilbert?

  Oh, I'm sorry, at the time when they announced the acquisition of Fortress.

• 48:33David Rosenthal?

  Yep.

• 48:34Ben Gilbert?

  So they've got seventy billion. There's nothing that looks like technology investing about Fortress. Why are they buying Fortress? What are they doing with that? How does that make sense? And fast forward to today, they're under the same umbrella under Rajiv. They've they've gotten rid of the sides of the business that don't make sense as much. But why? Why'd they do that?

• 48:55David Rosenthal?

  Well, and I think this is what we see now is is and why we couldn't do this episode till now. People were asking this question, but now it's clear. They want and Maso wants to become the largest money manager in the world. And they're already pretty close. So like the next largest fund manager is KKR, which has a hundred and sixty-eight billion under management. KKR has been around for decades. The SoftBank Financial Services, you know, has been around for like a year, a year and a half. And they have a hundred and forty with a goal of doubling in the next five years. So they are very likely soon to become the largest money manager in the world.

• 49:32Ben Gilbert?

  Yeah, there's the quote from, I think this is the New York Times, from Rajiv. "Right now, we are close to a hundred and forty billion, counting the combined assets. If we perform well, we hope to be two times that number in the next five years." That's a mark on the wall.

• 49:46David Rosenthal?

  Yeah.

• 49:47Ben Gilbert?

  Here's a question I've got, David. In one sense, it's just accounting. It's it's what pocket does it end up in? But the twenty-five billion that that SoftBank contributed to SoftBank Financial Services, does that draw a management fee? And is there carry on that? Or how does that work?

• 50:05David Rosenthal?

  Yeah, I don't, I don't know. I suspect though, if they structured it like a typical, what would be a general partner commitment in funds. So what the general partners of funds, the amount that they would invest personally into the fund. I suspect there is no management fee on that, but then they get 100% of the profits. So they don't, instead of getting 20% of the profits to carry, they get 100% of the profits on that capital.

• 50:32Ben Gilbert?

  And so then this is sort of interesting question of what is SoftBank Financial Services? Is it a venture fund or PE fund, or call it a private equity firm that has one very large LP called SoftBank that put in 25, and then another very large LP that put in 45? Or is it corporate venture where they've also taken on a whole bunch of other investment? Like the biggest corporate venture of all time that actually is, is a way bigger business than their core business. It's this weird in-between thing that we've not really seen before.

• 51:05David Rosenthal?

  Yeah. Well, let's move into, into acquisition category now. So I think, you know, what's going on and with this announcement, to me, this is a new major division of SoftBank that is going to be its own business entity that, let's just assume they have 2% management fees on capital under management, and that they have 25 billion of the commitment from SoftBank, so they're not getting fees on that. But, so remove that down to 115 billion under management, that is an annual fee stream of $2.2 billion annually of just straight cash flow into SoftBank.

• 51:45Ben Gilbert?

  As I was skipping ahead a little bit to where I was going to grade, I was just doing my calculation on if just the 75 billion in, of the non-SoftBank money in the, in the Vision Fund, over the 12 years of the fund, that draws an $18 billion management fee. So if you couldn't do the Vision Fund without buying Fortress, was it worth the 3.3 to generate 18 guaranteed over 12 years? It really gets to that guarantee that you're talking about that was, that was so interesting, and what SoftBank saw in Fortress.

• 52:12David Rosenthal?

  Yeah, yeah.

• 52:14Ben Gilbert?

  And not to mention, if they can 2X the Vision Fund, that carry is another 15 billion, the carried interest on the profits of that venture fund. And the goal obviously is to do-

• 52:25David Rosenthal?

  You mean the management, oh, if they return 2X in terms of profits on the Vision Fund, then the carry that they get 20% of that is another, well, it's even more than that. If, say, the Vision Fund ends up at $100 billion, if they return $200 billion-

• 52:42Ben Gilbert?

  Oh, I was thinking of just the non-SoftBank portion.

• 52:46David Rosenthal?

  Oh, just the non-SoftBank portion, yeah, yeah.

• 52:48Ben Gilbert?

  2X-ing a $75 billion fund, $75 billion of profit, of which 15 billion goes to SoftBank Financial Services, just as the carried interest off that profit. Now, I bet you they believe they can do a lot more than 2X, but-

• 53:03David Rosenthal?

  Well, I don't know. Maybe they do, maybe they don't. So this is where I think is sort of, to me, this announcement and then doing all this research, what came out of it, the key to me is that realization that Masa had after the tech bubble burst about the value of stable predictable cash flows and the management fee. So even if, put aside, performance of the Vision Fund, they could lose all of the money. And yet still, they're going to make $18 billion in management fees over the next 12 years from that, like 100% certainty. What can you finance within all the rest of SoftBank with that cash flow?

• 53:42Ben Gilbert?

  If that's not rent-seeking, I don't know how you define rent-seeking.

• 53:48Ben Gilbert?

  It's just incredible. It's justifiable in lots of ways, but there is no arguing that that is just incredible.

• 53:58David Rosenthal?

  Yeah. So for me, the category, actually, I don't know that anybody would have predicted this when they announced the Vision Fund a year and a half ago and then announced this acquisition. But to me, this is a business line. This is a new business line within SoftBank that is an asset management business line that is going to be extremely cash flow positive regardless of the outcome of any of the investments.

• 54:25Ben Gilbert?

  Yep. And in a couple of interviews, they've alluded to the fact that Fortress probably isn't the only one in the next couple of years that they're going to buy.

• 54:33David Rosenthal?

  Yep. Yep. They're going to buy more asset management firms that may or may not have anything to do with technology.

• 54:39Ben Gilbert?

  You know, I thought when I first cursory understanding of this before I did real research was that they needed to buy Fortress to have the sort of credibility to run and deploy a fund before they could raise the vision fund. I don't actually think that's it. I think they want to be in the business that Fortress is in, and they want to be in a lot of other financial services businesses, too.

• 55:02David Rosenthal?

  Yep. Yep. Now, the question then is, why would, if you know this about the incentives, why would you, why would you invest? I think there actually still is a really good argument for why the investors in the vision fund would invest, which is that if you think about who those investors are and the amount of capital that they have, whether the Saudi Arabia Sovereign Wealth Fund, or Mubadala, or Apple, there's really no other way to try and generate returns on that amount of capital without doing something like this. You just can't, say they wanted to invest in Sequoia. You know, Sequoia's early-stage venture fund is, it will even take their growth fund together, too. That's probably about $2 or $3 billion across the two of them.

• 55:47Ben Gilbert?

  They're not going to take Apple as an LP, taking half of the fund, when they've already got all these other LPs.

• 55:52David Rosenthal?

  Apple has hundreds of billions of dollars in cash.

• 55:56Ben Gilbert?

  And Apple can't even, you can't even put that money back into your core business. Like, they're trying, and they can't put that money back into their core business to generate a return on it.

• 56:03David Rosenthal?

  Yep. And, and the dynamics are totally the same with the sovereign wealth funds. They just have so much money, they need to put it somewhere to try and create a return. So actually, what the product that SoftBank and Masa have created is, is a vehicle for that to happen.

• 56:22Ben Gilbert?

  One thing we haven't talked about yet is it's called the vision fund. What is the vision? And the vision is to own pieces of all of the companies that may underpin the global shifts brought on by artificial intelligence to transportation, food, work, medicine, and Finance. And so if you look at the seemingly scattershot investing that they're doing, what it is, is owning big pieces of companies where they have actually quite a bit of control and, you know, big governing chunks of the companies in a lot of cases that are-

• 56:50David Rosenthal?

  Yep, way more than your average venture investor.

• 56:53Ben Gilbert?

  Yep, that have tons of data, tons of access to, you know, these companies that generate tons and tons of data that SoftBank believes creates the constellation of what the world looks like in the future, that is highly autonomous, data-driven, lots of information moving around in real time across a bunch of different sectors. It's a little loose and it's a little fuzzy, but to the extent that you agree with that vision and you believe that that's where the world's going, Mas has been prescient a few times before and there are worse people to follow.

• 57:23David Rosenthal?

  Well, this is really the third time he's tried to do it. This is the, by far, the biggest swing he's ever taken, but the first time was with the first wave of the internet with Yahoo and Alibaba. Now, SoftBank invested in 800 companies to get those two, but between those two and then Yahoo Japan-

• 57:40Ben Gilbert?

  That's the game, baby. Like, doesn't matter, they got it.

• 57:43David Rosenthal?

  They made probably, if I say 60 billion from Alibaba alone, then you add in Yahoo and Yahoo Japan, that's probably another 10-ish, I'm guessing, so let's say 70 billion. And then now they're in the middle of doing this with the next wave of mobile, you know, that they did with Vodafone Japan, the carrier, then getting the iPhone, and then buying ARM. And now they're doing it with the next future wave of, you know, well, sort of hard to define, but machine learning, artificial intelligence, of stuff, the next wave of stuff. And now they're doing it with this massive fund.

• 58:21Ben Gilbert?

  It's a broad vision. It's not a vision like, "We invest in really great marketplaces." It's a vision like, "We invest in the future of the way that people do things using technology." I mean, truly, like, does anybody have a divergent vision from what the vision funds' vision is? Like, do we think that it's not going to be tons of sensors everywhere generating data that are used to make intelligent decisions and do autonomous things and use a bunch of maps and use a bunch of geo data? Like, it just feels like their vision is sort of like what everyone has looked around and nodded their heads and agreed upon is the vision.

• 58:57David Rosenthal?

  But nobody else has created a vehicle like they have.

• 59:00Ben Gilbert?

  That's true. That's true. I'll throw in, I also think it's a people acquisition also. It's a business line, but there's a thousand people now in SoftBank Financial Services. Many of them came from Fortress. They aren't the big name people. It's not Rajiv that's running the operation.

• 59:17David Rosenthal?

  Although we forgot to mention, the most important thing about the Fortress acquisition, Rajiv had worked at Fortress directly before joining SoftBank. So he was only there about six months, but from Deutsche Bank, he went to UBS. And then from UBS, he went to Fortress briefly and then joined SoftBank.

• 59:34Ben Gilbert?

  Yep. Great point. Great point. But it's a huge team of people that are really the infrastructure on how do you raise, deploy, manage, account for, do everything that you need in a big fund.

• 59:48David Rosenthal?

  Compliance, a trading desk for the public securities, all of these things. That SoftBank didn't have anybody and Fortress is over a thousand people, most of whom are this back office element doing all this. So category, you would say?

• 1:00:05Ben Gilbert?

  I'm still going business line, but it's a little bit of an infrastructure play also. It's like infrastructure of people.

• 1:00:11David Rosenthal?

  Yeah. Yeah. I almost said infrastructure, but that was actually what I was going into. The episode or going into the research.

• 1:00:19Ben Gilbert?

  Which is not a category that we have on the show. We're taking our license to just add more categories.

• 1:00:24David Rosenthal?

  Add more categories. But doing the research, I really realized that like, no, this is a business line that is a new thing within, a new product and business line within SoftBank.

• 1:00:34Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:00:47David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:01:04Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:01:19David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:01:43Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:02:02David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:02:32Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 1:02:57David Rosenthal?

  Okay. What would have happened otherwise?

• 1:03:00Ben Gilbert?

  This is like the weirdest one to do this section on.

• 1:03:03David Rosenthal?

  I know. Well, okay, but let's take it from the investors in the vision funds standpoint. The Apples, the sovereign wealth funds, they have all this capital. They need to do something with it. They want to chase returns. They want to, they want to invest in the future of technology. Without something like SoftBank, how do they do it?

• 1:03:25Ben Gilbert?

  Well, let's just say it would have been harder to park big piles of money and generate the kind of returns that the vision fund hopes to return. Where is the trade off? Like, the question is, is it zero sum or not? Like, is SoftBank, are the SoftBank returns that are going to these new investors, these new LPs in the vision fund, being generated at the expense of where cash could have gone otherwise? Or by creating this new financial product, have they actually created new value?

• 1:03:53David Rosenthal?

  I don't know. I'm not sure it could have happened otherwise. Like, who else would do this?

• 1:03:59Ben Gilbert?

  Yeah.

• 1:04:00David Rosenthal?

  I mean, maybe a bank, an actual bank as opposed to a SoftBank. But they wouldn't have the credibility.

• 1:04:08Ben Gilbert?

  Yeah. And I guess what happens otherwise is each of those companies try to deploy, because ultimately what's happening is big companies alongside sovereign wealth funds and SoftBank are putting capital into growth stage startups or late-stage startups, or actually what they haven't done yet, but said they could do with some of it is take privates. So, public companies that they, they take private. And what could have happened is instead of unifying that all into one fund, which takes its own management fee and carried interest, they could have all done that individually through very large corporate venture. But very large corporate venture isn't really a thing, and companies aren't that good at doing that. And it creates conflict of interest all over the place.

• 1:04:51Ben Gilbert?

  And so if you have that arms-length transaction of having a separate fund managing that for you, then you get exposed to upside that corporations tend not to get the exposure to because they're worried about cannibalization.

• 1:05:06David Rosenthal?

  Well, and you're just limited too. I mean, SoftBank made $60 billion from Alibaba, but that's still, even if they had turned around and used all of that capital to reinvest, that's still only $60 billion. Now, less than two years later, they have $140 billion because they've opened it up to others as well, to Apple, to Qualcomm, to Foxconn, to Sharp, to sovereign wealth funds.

• 1:05:30Ben Gilbert?

  I guess I'm trying to make the point of like, what does Apple do with that billion dollars? Yes, they could go invest it in startups, but they tend not to.

• 1:05:38David Rosenthal?

  Right. Oh, yeah. You're saying they would do it themselves?

• 1:05:40Ben Gilbert?

  Yeah, yeah, exactly. Exactly.

• 1:05:43David Rosenthal?

  Yeah, but they're not equipped to do it. Apple by itself is a lot of money, but it's less money than Apple plus SoftBank plus Qualcomm plus the sovereign wealth funds.

• 1:05:53Ben Gilbert?

  Right. I guess I don't really care about how much money, because it's the same money, whether it's all spread out or put together. But for example, let's see, who's it? What's a good example of one of these recent big, big SoftBank investments?

• 1:06:04David Rosenthal?

  Well, take the Uber investment. I mean, that was $8 billion.

• 1:06:08Ben Gilbert?

  Yeah. How do you line up $8 billion from the types of LPs that the Vision Fund has in order to invest it in Uber and have that unified front in order to do the weird tender thing that they did for the, the lower price? You basically can't get everybody in a line to do that on their own. Like, that's the argument for centralization.

• 1:06:25David Rosenthal?

  Well, and could you imagine Apple trying to do that? Then it's like, Apple's negotiating with Uber to do this thing and to replace the CEO.

• 1:06:33Ben Gilbert?

  The arm's length is actually value creative in that way. I'm buying it, or I'm trending toward buying it.

• 1:06:39David Rosenthal?

  Well, I do think it's a new product, you know? Nobody could do something like that before SoftBank.

• 1:06:46Ben Gilbert?

  Right. It's also value creative in the sense, like, if you believe that partially saved Uber, it's massively value creative that that company would continue to thrive when they wouldn't have been able to get their ducks in a row before because they had too many worrying shareholders. And there could be future Ubers that require someone like SoftBank to do something similar in order to, to line everyone up.

• 1:07:08David Rosenthal?

  Which honestly, the traditional venture, well, traditional venture community, I mean, you've got folks at the end of the spectrum like Wave that are, it's just a totally different thing. But even the larger investors and the later stage investors, they're not, they're not really equipped to do it either because the amount of capital they're bringing is, is much less. The stakes they're taking are much smaller. If you're taking a 10% stake in a business, you know, with, well, let's take the valuation of Uber. I mean, the... Firms that were investing in Uber's late-stage rounds were taking a 1% or less stake in the business. You can't then drive change with that.

• 1:07:43Ben Gilbert?

  Right. Great point. Great point. One other thing that I do want to say that you just reminded me of about the Vision Fund is even though they're deploying private equity sums of money, or even larger than that, they are acting like venture investors. So whereas a private equity firm would either take a company private and cut headcount, or buy a late-stage profitable company and cash flow it, SoftBank is primarily buying cash flow negative companies, or chunks of cash flow negative companies, that still have a lot of growth left in them, and investing in that growth, rather than trying to suck all the profits out of it, and over-leverage

• 1:08:26Ben Gilbert?

  it with debt, or have it declare bankruptcy later, or something like that. So it's the first time we've seen this much money from a private investor be deployed into high-growth companies. And the alternative that you would see that is if this is another form of what wouldn't have happened otherwise, but if the Vision Fund didn't exist, some of these companies would have to go to the public markets in order to continue to get growth capital, which we will hold on to in our tech themes.

• 1:08:53David Rosenthal?

  Indeed, indeed. It's the time horizon of the fund, too. It's not only is it the largest fund ever raised, it also has a very long time horizon. So that's why it's structurally set up to operate, just like you're talking about, Ben, to be more of a venture investor mindset than a private equity, I'm going to come in and within three years, squeeze.

• 1:09:15Ben Gilbert?

  Yeah. All right. Well, the first tech theme, stay private longer.

• 1:09:22David Rosenthal?

  Stay private indefinitely.

• 1:09:24Ben Gilbert?

  So that is the question, right? Is it, are we in this period? So to recap, I want to throw out a couple of pieces of data, and I want to try and make this as digestible as possible in a verbal format. In 2017, there was $84 billion deployed by venture capitalists, which is twice as much as 2013. So it's been steadily increasing since 2009, since after the the real estate crisis. And, you know, twice as much venture dollars being deployed into companies today, or I'm sorry, in 2017 as compared to 2013. However, the total exit value of these companies has stayed relatively steady, and the number of deals has actually gone down. So the exits are are less companies exiting for more money. And so what does that lead to?

• 1:10:09Ben Gilbert?

  There's more private companies than ever that are around today. And the question that everyone's asking is, are we waiting for the IPO explosion where the 70 plus unicorns that exist today, the billion dollar plus valuation companies? Are we waiting for them all to IPO? Are we somehow believing that there's going to be M and A that's actually buying that many billion dollar plus companies? Like, are there actually acquirers that have the appetite for that? Or are we entering this new era where with funds like the Vision Fund, is it possible to sustainably stay private? And in the old days, that was either sort of owned by the person who started the business,

• 1:10:53Ben Gilbert?

  or it went to private equity and it was really, it stopped growth, and it was really about cash flows. Are we going to be able to see the Vision Fund create a new way to be held privately through your growth years all the way until profitability and never go public? And then you get segmentation in something like the Vision Fund, where there's some sort of true private equity once the growth has graduated, but they still hold on to it for the cash flows. And then there's other younger, high-growth companies in there. I don't know. It's kind of an interesting, interesting, different future. There's pluses and minuses, but one big minus is the retail investors and the American public or any other public doesn't really get access to the the profits of innovation.

• 1:11:35David Rosenthal?

  Yep. Well, in many ways, I have to imagine that for the Vision Fund, the model for the Vision Fund is Alibaba. You know, they invested in the year 2000. They invested 20 million. And the company then didn't go public until 2014, so 14 years later. And when they went public, it was at over a $200 billion market. So all of that value creation happened privately. Now, if that had been in the Vision Fund and generated 60 billion of of value, or perhaps even more, because they would have been able to invest far more than 20 million in the beginning and along the way. It's like they're playing the venture game where there's a power law, but they're doing it at this enormous scale.

• 1:12:18David Rosenthal?

  But the downside is like all the companies that aren't at the top of the power law. I think what you're saying is like, what happens to them?

• 1:12:26Ben Gilbert?

  Right. What happens to the the 68th unicorn that is worth like 1.1 billion dollars? And doesn't have a likely acquirer? I don't know.

• 1:12:38David Rosenthal?

  Yeah. Well, maybe the answer is just like you're saying. They operate as a private company in the same way that in the past they would have gone public and would have been a one to $2 billion market cap public company indefinitely. They'll just be that privately. But yeah, I don't know.

• 1:12:54Ben Gilbert?

  Well, to keep going on that that philosophical piece there for a moment. There's a societal trend of of wealth polarization. And a sort of parallel trend is more power and more more economics going to corporations over individuals. And if the late stage growth, all the profits of that are going to shareholders like a Vision Fund instead of shareholders like retail investors, then and and all the LPs of the Vision Fund are either sovereign wealth funds or huge corporations, that does further entrench that narrative of more of the profits of innovation, even later stage going to to corporations, even when, you know, they actually have very, they're not even in the same line of business.

• 1:13:38Ben Gilbert?

  They were just a an investor in the pool that that continue to capitalize that company later on.

• 1:13:44David Rosenthal?

  I think there's a yes, but here. Yes, 100%. But SoftBank itself is a public company. So anybody, you know, you and I can go invest in SoftBank right now. And then

• 1:13:57Ben Gilbert?

  Why haven't we?

• 1:13:58David Rosenthal?

  benefiting from this.

• 1:14:00David Rosenthal?

  Which is super interesting when you, when you actually think about this and compare that to how it would work otherwise if this were all, you know, if this were, you know, Sequoia or whomever, which Sequoia supposedly is raising a, I think, $12 billion fund.

• 1:14:14Ben Gilbert?

  It's the last I saw.

• 1:14:15David Rosenthal?

  To compete in, in some sense with, with SoftBank here. The public has zero access to that. Whereas anybody, you know, our parents and grandparents can go buy shares of SoftBank.

• 1:14:26Ben Gilbert?

  So at the end of the day, it's just one more money manager in the middle of a chain of money managers who are all, all getting a cut.

• 1:14:33David Rosenthal?

  It's turtles all the way down, Ben.

• 1:14:36Ben Gilbert?

  And it is actually circular, too. That's the craziest thing is like, I don't need to paint the whole circle, but like, there are ways where you can own something and simultaneously be owned by something all the, all the way around. Okay. So my question for you, David, we've talked a lot about the value creation here. Let's talk for a million, a minute about being value destructive. Is there any way that some of the repercussions of, of what the Vision Fund creates and the amount of capital that it needs to deploy and the speed at which it needs to deploy it, are there situations where that could be value destructive?

• 1:15:09David Rosenthal?

  Well, talk to any VC in Silicon Valley and they'll talk your ear off about this.

• 1:15:15Ben Gilbert?

  It feels like they may have an opinion or incentives to have an opinion.

• 1:15:19David Rosenthal?

  Yes, yes. Well, with that caveat in mind, I mean, I think the scenario in which this is value destructive is, you know, what is, you know, I view as, you know, having been in VC for a while and observed like companies, there's this almost like law of gravity with companies and fundraising where if you raise the money, you will spend the money, no matter what your intentions or...

• 1:15:46Ben Gilbert?

  And let's be clear, like, that's not just like, I wonder how that happens thing. That is largely driven by IRR. Like, if, if you're an investor and you put money in a company, you want to be able to return the most money as fast as possible to your shareholders. So all of the forces at play on that company from, you know, when you put a bunch of money into a company, you get a board seat, you get, you get influence on the business, is to encourage the deployment of that faster so that they can grow faster, so that they can raise more, you know, on and on and on and get a return out of it.

• 1:16:16David Rosenthal?

  Yep. The problem is when you have so much money flowing into the ecosystem and into direct competitors with one another.

• 1:16:25David Rosenthal?

  Primarily than the way that the money gets spent is in customer acquisition. And when you have multiple companies spending money in customer acquisition, all you're doing is driving up the price of customer acquisition.

• 1:16:38Ben Gilbert?

  And giving money to Google and Facebook on their ad platforms by both spending gobs and gobs of money against each other bidding on the same keywords.

• 1:16:47David Rosenthal?

  It's shocking to me that Google and Facebook aren't investors in the Vision Fund because they're the biggest beneficiaries.

• 1:16:52Ben Gilbert?

  Truly, truly.

• 1:16:55David Rosenthal?

  Truly.

• 1:16:56Ben Gilbert?

  It also can train an organization to only know how to spend irrationally on customers, where you will never be able to, when you have to spend rationally, be able to get customers for less than their long-term value, their lifetime value.

• 1:17:10David Rosenthal?

  Well, I'm thinking back to our episode on Zappos with Alfred Lin and him talking about the best thing that happened to Zappos was the dot com crash, where they then A) had to learn how to operate leanly and acquire customers through things like the ad units in the shoe trays and in the TSA security lines in airports. But it was that they didn't have the competition spending against them in all these things. So the question is, and the downside scenario that a lot of VCs would paint about what the Vision Fund is doing, is it's just gonna, it's just gonna create this hyper-competition in so many markets, like you've seen play out in ride-sharing, where the revenues just

• 1:17:54David Rosenthal?

  keep growing and growing, but everybody's hemorrhaging massive amounts of capital in this kind of war of attrition, whether that's Uber or Lyft or DD or Grab or any of these companies.

• 1:18:04Ben Gilbert?

  Do you think it drives up valuations?

• 1:18:06David Rosenthal?

  Well, of course, yeah. I mean, if you're taking this money.

• 1:18:09Ben Gilbert?

  Or do you think it irrationally drives up valuations or unjustifiably drives up valuations?

• 1:18:16David Rosenthal?

  Depends how big you think any individual market opportunity is.

• 1:18:19Ben Gilbert?

  Yeah.

• 1:18:23David Rosenthal?

  Well, one more tech theme, I feel like we've, we've now painted all sides here. One more I want to slide in before we move to grading is just this whole story and doing the research, it really, and learning about Masa reminded me so much of Jeff Bezos. A theme I just want to call out here is what he's done. If you look at the Vision Fund and this whole asset management business line as a business, what he's done is the same thing that Bezos is doing with Amazon, which is adding more legs to the stool of SoftBank, more great businesses with predictable cash flows that can then come in and then finance, use those cash flows to finance the next businesses that they add.

• 1:19:05David Rosenthal?

  SoftBank just happens to be much more acquisitive in how they add businesses versus Amazon, which builds them in-house. But I think that both approaches have the same root, which is just being willing to constantly push the horizons of what your company is and how big it can, how big it can get.

• 1:19:24Ben Gilbert?

  Yeah, there's two models of innovation. There's internal and external for big companies and SoftBank is doubling hard on the external. Like if I asked you in the last five years, what innovative product has SoftBank created? You know, it's market engineering and financial engineering right now in a big way. And you look at Amazon and you'd ask that same question and I, it's 30 things, you know, and it's, it's two or three that are multi-billion dollar. It's a very different way to go about kind of the same problem. And they have very different reputational things associated with them. Like if you talk to somebody who has SoftBank on their board, they may tell you, boy, it's really tricky to deal with them. They take tons of control provisions. They take a huge number of voting shares in the company.

• 1:20:08Ben Gilbert?

  They're highly opinionated on, on what we need to do and how we need to do it. I think your mileage may vary and different people may, may say different things, but if an investor is sort of too controlling and coming into a company, it often has negative reputational things, things associated with it. Look at the way that Amazon is doing it instead of SoftBank. They have 100% of the economics in the new quote unquote company. They have 100% of the decision-making authority. They can force any employee's hand in that new quote unquote company to do whatever they want. And so it's kind of this funny like not invented here, us versus them, inside-outside dichotomy.

• 1:20:42David Rosenthal?

  Yeah.

• 1:20:43Ben Gilbert?

  David, I love the way that you framed it in comparing it to Amazon because it really sort of, it extends the borders of what is the system and who is the us to companies that you own pieces of rather than just us as a company.

• 1:20:59David Rosenthal?

  Yeah, that's interesting. Maybe the ultimate what would have happened otherwise would be if Jeff Bezos had accepted Mas's proposal to create a joint venture, Amazon Japan.

• 1:21:14Ben Gilbert?

  Amazon Bank.

• 1:21:16David Rosenthal?

  Yeah, that'll be a story for another day. Should we grade it?

• 1:21:19Ben Gilbert?

  Let's grade it. The criteria we're grading on here is how good of a decision was it for SoftBank to buy Fortress? And so to walk through that, you sort of need to have a, since they're not done yet, a perspective on what SoftBank will be in the future, how big it can be and how much buying Fortress actually had to do with that. And was it worth laying out the 3.3 billion? I will make the case that just from a, is it a good place to park your money perspective? They did actually pay up pretty good for.

• 1:21:54David Rosenthal?

  For Fortress.

• 1:21:55Ben Gilbert?

  Fortress, yeah. I mean, it was not.

• 1:21:56David Rosenthal?

  They paid about 40% premium?

• 1:21:57Ben Gilbert?

  Yeah, yeah. And typically when you're buying a publicly traded company, we see 20 to 25% premiums. So expensive purchase, but you know, the question is if it was essential to creating this new vehicle, this SoftBank Financial Services, that as we talked about, will generate, you know, 20-plus billion dollars over the next 12 years from the Vision Fund and Fortress just from fees, you know, it feels super justifiable. The question is, is it, you know, Apple Next justifiable? Is it Instagram justifiable? Like, did buying Fortress give them this 100x upside on that purchase?

• 1:22:39David Rosenthal?

  Do you want to grade first or you want me to?

• 1:22:40Ben Gilbert?

  I want you to grade first.

• 1:22:44David Rosenthal?

  Well, I'm gonna, I'm gonna go, to me, I never would have said this before we dug in on the episode. I mean, especially being in the Silicon Valley ecosystem here and everybody poo-pooing SoftBank, which again, they're like, there are definitely negative consequences to what's happening here. I think it's brilliant. Like, Masa is, he created a brand-new product, which is a vehicle for these very large pools of capital to credibly invest in, in growth and in the future. And I don't think anybody else except him could have done it credibly. And I think the Fortress acquisition for $3.3 billion as a means to jumpstart that and to, within a year and a half, become the world's second-largest, you know, fund

• 1:23:29David Rosenthal?

  manager, and with a goal to, in another few years, being double that. To me, it's an A. I mean, we will see how it plays out over the next few years, but even already, like, adding that infrastructure to get them, the guaranteed cash flow streams from the management fees across these funds is brilliant. So I think it's an A.

• 1:23:48Ben Gilbert?

  Do you think Apple would have put money in? Do you think Sharp would have put money in if they hadn't bought Fortress?

• 1:23:56David Rosenthal?

  Well, I think they would probably be justifiably pretty worried. Before they bought Fortress, like, the Vision Fund was like, a couple people, you know, with no, no management, no compliance, no trading desk, no nothing.

• 1:24:09Ben Gilbert?

  So the question then, to me, is like, so let's say that they could paint the right picture and get them to put the money in. If they would have been worse at deploying it, because they don't have the scale to deploy it, did Fortress actually give them the ability to deploy that capital? Or is it still pretty much, you know, Rajiv and Masa that are, are doing the main investing?

• 1:24:32David Rosenthal?

  Well, I think you, I think you gotta think about it beyond the Vision Fund. Like, Fortress gave them the ability to be a money manager. The Vision Fund is the first product in this

• 1:24:43Ben Gilbert?

  I see.

• 1:24:44David Rosenthal?

  New business line.

• 1:24:45Ben Gilbert?

  I was thinking about, like, do they have to show returns from the Vision Fund in order to raise Vision Fund 2? No. But will they have to, to raise Vision Fund 3? Yes. And let's say they're not actually that returns-focused, they're more fee-focused at this point. What really matters in this context, I think, is would they be able to, to raise Vision Fund 3 and draw the predictable cash flows from the management fees of that?

• 1:25:08David Rosenthal?

  Well, what I'm saying is it's not even all about the Vision Fund with Fortress and now with this new unit, the Vision Fund is just one product of what will be many. They're going to buy other asset management firms.

• 1:25:20Ben Gilbert?

  I'm in. I'm less convinced than you, so I'll go A-, but I think this is a very dangerous company for the next few decades.

• 1:25:27David Rosenthal?

  Yeah. But, you know, again, like, it's, I totally agree. On the other hand, it's a publicly traded company. It's not like the global public does not have access to the returns.

• 1:25:38Ben Gilbert?

  Right. Right. Well, listeners, before we jump onto the next part here, thanks for bearing with us over this very long episode. It's a topic I've long been curious about and heard people talk about and has been the topic of dinner parties and you get bits of information here and there. The whole story is really fascinating to follow end to end. And if you're still listening, thanks for coming with us on this journey and we hope that this sort of provides a nice canonical understanding of what is SoftBank, what is the Vision Fund, why is it all happening and what's it gonna be? It's certainly shaped my thinking on it.

• 1:26:11David Rosenthal?

  Yeah, me too. Thank you as always. Carve outs?

• 1:26:16Ben Gilbert?

  Carve outs. So I've got two. The first one is a shout out to friend of the show, Brian McCullough of the Internet History Podcast. So Brian's launched a new podcast with TechMeme called The Ride Home, where you can get highlights of the news of the day. So if you want to stay current in a bite-sized chunk, it's really fun and Brian's a great host and it's a really great way to kind of keep in touch with what's going on and get a little bit of Brian's loose editorial on things, which is always great. And the second one is, David, I think I texted you this, I finally got around to reading E-Boys.

• 1:26:48David Rosenthal?

  Uh huh, so great.

• 1:26:50Ben Gilbert?

  It is such an awesome book. For those who haven't heard of it, it is about the founding of Benchmark Capital. It was published in 2000. So the whole thing is colored with, you know, it's the five, six years, five years, I think, that Benchmark was around. The really sort of special relationships between the founding partners, bringing on Bill Gurley, the early investments that they made, the incredible story of eBay, the nuttiness of the dot com bubble. And the author is actually embedded with Benchmark to do all of the writing. He's actually in meetings, like transcribing stuff and he's sort of a fly on the wall.

• 1:27:27David Rosenthal?

  It's crazy.

• 1:27:28Ben Gilbert?

  You do get to hear these really, like everyone, you talk to lots of people, especially now in crypto or back in the bubble days, who will tell you like, oh, I called it. And you're like, really? Cause like, why didn't you move all your money out then? And you get to hear some of the comments in 98, 99 in Benchmark's office where one partner will say to another, this doesn't feel right to me for these reasons. And it's, it's amazing to actually have documentation of that. And so the, the most fascinating part of the book is it's really before everything completely falls apart. And there's just a few sort of early indicators of, uh oh, like this feels weird to me. But I would love to, I kind of want, like, I want to read part two, like what, you know, what were all the opinions in, in 2004? And, you know, how are they reflecting on those conversations?

• 1:28:12Ben Gilbert?

  But it's also kind of thrilling, like it's really well written. So if you like this podcast, you will love that book.

• 1:28:18David Rosenthal?

  This book could never be written again.

• 1:28:20Ben Gilbert?

  Like, no.

• 1:28:21David Rosenthal?

  It's the very fact of it being written and the reaction when it came out, like no venture firm would ever do this again.

• 1:28:30David Rosenthal?

  But it's just so great that it happened and it happened with, with Benchmark, one of the very best firms. Like I learned so much reading this book. It's just an incredible resource.

• 1:28:39Ben Gilbert?

  David, I don't know much about it. What was the reaction when it came out?

• 1:28:43David Rosenthal?

  Well, I think Benchmark was mortified because it like, it paints this window into, you know, and during the go-go days too, and everybody was making so much money.

• 1:28:51Ben Gilbert?

  They did all make an insane amount of money.

• 1:28:53David Rosenthal?

  An insane amount of money. And like all the dirty laundry gets aired, like, you know, people's opinions of other people and like, oh, you know, is this founder the right person? Are we going to fire them? You know, like in bringing in the new, Meg Whitman is the new CEO.

• 1:29:05Ben Gilbert?

  I will say though, like Benchmark comes out pretty good, like the.

• 1:29:08David Rosenthal?

  Oh yeah, they do.

• 1:29:09Ben Gilbert?

  It's, it's the other firms that I.

• 1:29:13David Rosenthal?

  All of this stuff tends to be so private and that's why like this book can never be written again. Like it's a real true window into like what it's like on the inside.

• 1:29:24Ben Gilbert?

  In an industry that has only gotten more private.

• 1:29:26David Rosenthal?

  Yep. Yep. And like the names are named.

• 1:29:30Ben Gilbert?

  Yeah. Yeah. And there are the names, like every name that's in there is the names in venture. So.

• 1:29:36David Rosenthal?

  Yep. Yep. Totally recommend it. Well, mine real quick. Just can't, you know, give enough shout outs and thank yous to Nick Fight, other friend of the show and former episode. One of the other books he recommended to me was, he's just got all my carve outs like covered, was The Three Body Problem, this amazing sci-fi book written by Chinese author Liu Shixin. I hope I'm pronouncing that right. It's incredible. The Three Body Problem is the first in a trilogy. The trilogy is The Remembrance of Earth's Past. Three Body Problem is great. The second book in the series, The Dark Forest, was actually my favorite. There's like a, what The Dark Forest is, is like this completely mind blowing

• 1:30:16David Rosenthal?

  concept. It's all set in the future and very sci-fi, but like it's very realistic too. And the whole series is sort of about an answer to the Fermi paradox. The Fermi paradox being like statistically, it's very unlikely that we are the only life in the universe, that Earth has the only life in the universe. But we haven't received any signals from anyone else. Why not? And this is like a potential answer to why not. And it's really cool. So highly recommend it. Thank you, Nick.

• 1:30:49Ben Gilbert?

  Cool. Well, David, I think, I think that's all we've got. Believe it or not, we are out of things to say.

• 1:30:55David Rosenthal?

  I know. Our episodes just keep getting longer. We need to, we need to get some quick ones in here.

• 1:31:00Ben Gilbert?

  We do. Listeners, there's some exciting stuff coming up in the next few weeks. We've got an IPO with Dropbox. We've got, is it technically an IPO of Spotify? A direct listing?

• 1:31:13David Rosenthal?

  Yeah, I think it's just a direct listing. There's no offering because they're not creating any new shares to sell.

• 1:31:19Ben Gilbert?

  No. No. So that'll be a fun one. We'll try and get that out in short order after, after trading begins with a typical acquired narrative and our quick take on what's going on. I think that's all we've got, though.

• 1:31:32David Rosenthal?

  We're out of gas.

• 1:31:33Ben Gilbert?

  We are. I'm hungry.

• 1:31:34David Rosenthal?

  Thanks for sticking with us. Yep. We'll talk to you guys soon. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:31:44Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:31:55David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:32:15Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:32:28David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:32:39Ben Gilbert?

  If you aren't subscribed and you want to hear more, you can subscribe from your favorite podcast client. If you're on Breaker, comment on this on Breaker. We love the hearts and even more of the comments. Would love an iTunes review or an Apple Podcast review. So if Apple Podcasts is where you're listening to this or if you have a free moment right now and enjoyed this show, we'd love nothing more than share it with your friends on social media, more privately on iMessage, or a review or a comment on one of those platforms. And thank you so, so much.