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SoftBank Founder Builds an Empire on Debt and Charm

Last summer, OneWeb founder Greg Wyler flew to Tokyo to visit Japan’s richest man, SoftBank CEO Masayoshi Son. Mr. Wyler, whose startup wants to beam the internet from satellites in space, wasn’t desperate for funds. But his investors arranged the meeting anyway.

What followed over the next eight-and-a-half hours was classic Masayoshi Son. First, the two bonded over deep technical details of satellite orbits and data transmission, Mr. Wyler said. Then Mr. Son, using a projector and a whiteboard, illustrated how Mr. Wyler’s startup fits into a future where satellites connect billions of internet-enabled devices, robots, cars and people. Mr. Son described intelligent robots performing complicated tasks as if such a world had already become a reality. “It was a conversation with Arthur C. Clarke and Jules Verne wrapped up into one,” Mr. Wyler said. “Masa is kind of like an oracle.”

The Takeaway
• SoftBank made big gains on early investments, unlike now
• SoftBank chief failed to woo Bezos in late ‘90s
• Called off a deal with HTC over weak handshake

He took Mr. Son’s money. In December, SoftBank announced a $1 billion investment in OneWeb.

With his checkbook, charm—and a cutthroat willingness to abandon some startups when necessary—the 60-year-old Mr. Son has turned SoftBank into one of the world’s most influential dealmakers. Armed with the $93 billion SoftBank Vision Fund, the world’s largest-ever tech investment fund, Mr. Son is now embarking on an unprecedented buying spree. SoftBank, which in recent years has bought control of U.S. telecom carrier Sprint and U.K. chip designer ARM, is now trying to buy a piece of Uber. And Mr. Son is reportedly near a deal to combine Sprint with T-Mobile US, giving him a big stake in what would be the third-largest wireless carrier in the U.S.

Interviews with founders, former colleagues, fellow investors and bankers offer insight into Mr. Son’s character and thinking at a time when the global tech industry is trying to figure out his next move. SoftBank declined to make the CEO available for an interview.

Deals and Debt

The big question is where all this spending will lead. Mr. Son embarked on a tech investment splurge in the 1990s, and SoftBank nearly went kaput when the stock market crashed in 2000. Now he is paying huge prices, seemingly ready to write a check to any unicorn. He has financed all of this aggressive dealmaking with equally aggressive borrowing. At a news conference in May, Mr. Son defended his strategy, saying SoftBank is a goose that eats debt in order to lay golden eggs. As of June, SoftBank was sitting on more than $100 billion of interest-bearing debt. The company carries junk-grade credit ratings from Moody’s and Standard & Poor’s.

Mr. Son’s debt-fueled investment strategy is made possible by the company’s steadily profitable Japanese telecom business and its 29.5% stake in Chinese e-commerce giant Alibaba. The Alibaba stake, now worth $130 billion, was acquired for a pittance between 2000, soon after the company launched, and 2004. (SoftBank’s own market capitalization is $90 billion.) Additionally, the Vision Fund, which includes capital from the state funds of Saudi Arabia and Abu Dhabi as well as Apple and Qualcomm, allows Mr. Son to go on a much bigger deal spree than SoftBank’s own balance sheet can tolerate.

“When the internet was beginning to take off, we didn’t have enough capital,” Mr. Son said at a news conference in Tokyo last month. “If we’d had back then the same capital we have now, SoftBank would have become enormous. Most of the world’s internet industry could be part of our group now.”

But while he hit the jackpot in the past by spotting startups like Alibaba when they were little known, SoftBank and the Vision Fund are getting into many late-stage deals worth at least hundreds of millions of dollars each. Those outsize deals come with outsize risks of overpaying for companies with already-high valuations.

"My experience with Masa was that he was the best person to convince entrepreneurs to give a big stake in the early stage," said Gary Rieschel, founding manager of China’s Qiming Venture Partners who worked with Mr. Son at SoftBank from 1996 to 2004. “Is that going to be the same when he gets into many late-stage deals?”

Dot-com Bubble

Mr. Son founded SoftBank as a distributor of computer software in 1981, and a decade later, as the internet was taking off, he began investing in the U.S. He bought the Comdex trade show and PC magazine publisher Ziff-Davis. He invested in numerous startups, including Yahoo when it was tiny. He also operated joint ventures in Japan with Yahoo, Cisco and other U.S. firms.

Not all his ideas worked out. In 1998, Mr. Son flew to Seattle and made a pitch to Jeff Bezos for a joint venture with Amazon. Mr. Son made a passionate presentation while Mr. Bezos laughed a lot without saying yes or no, according to Takenobu Miki, Mr. Son’s then-secretary who was in the room. The previously unreported meeting never led to a deal.

Back then, Mr. Son was talking about the “digital revolution” that would change the world for the next 300 years. The media called him “Japan’s Bill Gates.” In fact, Mr. Son briefly became as rich as Mr. Gates in early 2000 when SoftBank shares skyrocketed.

Then everything collapsed as the dot-com bubble burst. SoftBank lost nearly 99% of its market value in two years, wiping out most of Mr. Son’s wealth. Angry shareholders called him a fraud at a meeting in Tokyo.

Mr. Son managed to keep his company alive. SoftBank sold its stake in the Cisco joint venture back to the U.S. company, raising enough capital to make a new bet on Japan’s burgeoning broadband internet market through its Yahoo Japan unit. Within a few years, he was back doing big deals. In 2006, SoftBank took out hefty loans to buy Vodafone’s loss-making Japanese telecom carrier unit for more than $15 billion, a risky bet that eventually helped create the largest source of profit for SoftBank.

More recently, SoftBank has made even bigger bets, such as its 2013 acquisition of Sprint for $22 billion and last year’s deal to buy ARM for more than $30 billion.

“What Mr. Son is doing now is what he wanted to do in the 1990s,” said Mr. Miki, who now runs his own online education firm in Tokyo.

Mr. Son wouldn’t have been able to recover from the dot-com meltdown and pull off all the audacious global deals without help from other SoftBank executives like Vice Chairman Ron Fisher, his right-hand man in the U.S. who has been with the company since the 1990s. For his latest buying spree with the Vision Fund, Mr. Son has assembled a team of seasoned bankers and Silicon Valley veterans, working mostly in London or the U.S. “SoftBank is a team, and that doesn't get enough credit,” Mr. Rieschel said.

Still, the charismatic Mr. Son will always be the ultimate decision maker and the face of SoftBank. Indeed, while making headlines with SoftBank’s multi-billion-dollar deals, he also likes to hobnob with the world’s most powerful individuals.

In early December, for instance, Mr. Son had a private meeting with Donald Trump in New York. In the lobby of Trump Tower, Mr. Son told reporters that he had promised Mr. Trump that he would invest $50 billion in the U.S. and create 50,000 jobs. Later that day at a rally in North Carolina, Mr. Trump gave a shout out to “Masa” saying, “He’s a great guy.”

“It was a conversation with Arthur C. Clarke and Jules Verne wrapped up into one. Masa is kind of like an oracle.”

Later that month in Japan, when Prime Minister Shinzo Abe and the country’s business leaders hosted Vladimir Putin at a Tokyo event, Mr. Son was spotted chatting up the Russian president, while other Japanese executives timidly held back. Mr. Putin, with a big grin, draped his arms around Mr. Son’s shoulders. Mr. Son later told Japanese TV reporters that Mr. Putin asked him to make big investments in Russia. ”Mr. Putin asked me to say hello to Mr. Trump,” Mr. Son said.

Failed Mergers

Some of Mr. Son’s deals haven’t worked out as planned. When SoftBank bought Sprint in 2013, the carrier had been struggling for years with piles of debt and a weak position in the U.S. telecom market. Mr. Son’s hope was to merge it with T-Mobile, creating a stronger No. 3 to AT&T and Verizon. At a meeting with bankers to discuss financing for the potential deal, Mr. Son used the back of an envelope to calculate what the combined value of the carriers’ spectrum would be, as a way to show how the deal would pay off, according to a person who attended the meeting.  

Opposition from Obama administration antitrust regulators caused SoftBank to abandon the T-Mobile deal in 2014. But now, under the Trump administration, Mr. Son is once again trying to make the merger between Sprint and T-Mobile happen. Recent reports suggest an agreement is near. 

Even if Mr. Son manages to seal the deal, it won’t be an easy ride for SoftBank. Moody’s said in a report in June that integration would be challenging from an operational perspective. And it predicted the combined company would have to take on an additional $10 billion in debt to finance the investments needed to merge the companies’ cellular networks.

Mr. Son has faced issues on other deals. He tried to merge OneWeb with its competitor Intelsat earlier this year, but the proposed $14 billion deal failed because it didn’t gain enough support from Intelsat’s creditors.  

When Mr. Son was trying to orchestrate that merger, SoftBank and OneWeb executives held meetings to delve into Intelsat’s debt structures. OneWeb’s Mr. Wyler said he was impressed by Mr. Son’s financial wizardry. “Masa understands complexity piled upon complexity piled upon complexity. To him, it’s not complex,” Mr. Wyler said.

Comrades in Revolution

Founders who work with Mr. Son say they took his money because of his long-term vision. Mr. Son likes to describe his portfolio companies as “comrades” spearheading a revolution together.  

But other executives who have dealt with him say Mr. Son can be mercurial, changing his mind on deals at the last minute. In 2011, SoftBank held discussions with smartphone maker HTC to together invest in New York-based digital music startup Beyond Oblivion, according to former HTC chief content officer Phil Chen. Mr. Son was initially excited but later decided not to invest. When Mr. Chen asked Mr. Son why, he said a handshake with Beyond Oblivion’s founder left him with a shred of doubt so he decided not to go ahead with it. “Masa said when they shook hands, his pinky slipped away,” Mr. Chen recalled.  

Another founder has a more unhappy memory of Mr. Son changing his mind. In 2014, SoftBank led a $90 million round for Indian real estate portal Housing.com. Shortly after the deal, Mr. Son spoke to co-founders on a video conference call. He praised the young entrepreneurs and told them not to worry about revenue or profit and just concentrate on expanding their user base. Mr. Son emphasized that his support was for the long term. But Housing.com soon ran into problems, as concerns over the real estate market’s outlook grew and its CEO clashed with the board and investors. SoftBank eventually brought in a new management team and steered Housing.com toward a merger with a competitor.

“SoftBank knows when to pull its support back,” said Housing.com cofounder Jaspreet Saluja. He left the company and is now working on a new startup.

India has been a challenging market for Mr. Son. Snapdeal, an e-commerce startup that SoftBank backed, has fallen far behind Amazon and local rival Flipkart. The Vision Fund recently poured $2.5 billion into Flipkart as Mr. Son seeks a new foothold.  

As the Vision Fund aims to invest $100 billion over the next five years, Mr. Son’s dealmaking will only accelerate. Earlier this month, the Vision Fund led a $250 million investment round for Slack, which valued the workplace software startup at $5.1 billion. Last month, office-sharing startup WeWork announced a $4.4 billion investment by SoftBank and the Vision Fund.

One of the potential deals that will test Mr. Son’s ability is his ongoing attempt to buy a stake in Uber. SoftBank has already invested in ride-sharing startups in China, India and Brazil. Now, SoftBank is leading a group of investors who want to buy as much as $10 billion of Uber shares, but Mr. Son must persuade existing shareholders to sell enough stock at a significant discount to Uber’s last valuation of $69 billion. It is still highly uncertain whether he can make the deal happen. Benchmark Capital, one of Uber’s earliest and largest shareholders, is opposing SoftBank’s proposed investment, The Wall Street Journal reported last week.

With the Vision Fund, SoftBank’s investments are getting bigger and spreading across many sectors and geographies. “That compounds the difficulty of getting it right. But if they can focus around fewer sectors, blitzscaling via global consolidation of unicorns makes sense,” said GGV Capital Managing Partner Hans Tung.

Mr. Son portrays his endeavors as part of a sweeping historical arc much bigger than the wins and losses of individual deals.

At SoftBank’s annual conference in July, Mr. Son started his presentation by talking about how 18th century British landowners—the so-called “landed gentry”—made the Industrial Revolution possible by taking risks and putting their capital behind innovations. Now, the world is about to experience the “information revolution” as artificial intelligence is expected to outperform human intelligence, he said. SoftBank, helped by its Vision Fund, wants to be the landed gentry of the coming new revolution, he said.

OneWeb’s Mr. Wyler remembers the intensity of his first meeting with Mr. Son last summer. After Mr. Son shared his vision of the future with robots and driverless cars, they discussed deal structures and how they could work together. By that point, they had been talking nonstop for seven hours. “Then Masa looked at me and said, ‘You should be flattered,’” Mr. Wyler recalled.  

Juro Osawa is a reporter covering tech in Asia, from Alibaba and Tencent to startups. He previously worked for The Wall Street Journal. He is based in Hong Kong and can be found on Twitter at @JuroOsawa.