Gambling Man: The Secret Story of the World's Greatest Disruptor, Masayoshi Son

In normal times, Michael Moritz spent weekends in San Francisco taking a spin on his elite racing bike or contemplating the German Expressionists and post-war British masterpieces in his mansion in Pacific Heights. But these were not normal times. An intruder from Japan had turned his world upside down.

On the morning of Sunday, 17 September 2017, Moritz, the lean Welsh emigre who became a venture capital billionaire finally exploded. ‘There is at least one difference between [North Korean dictator] Kim Jong Un and Masayoshi Son,’ he wrote in an email to Sequoia colleagues. ‘The former has ICBMs that he lobs in the air while the latter doesn’t hesitate to use his new arsenal to obliterate the hard-earned returns of venture and growth equity firms.’

His email continued: ‘The formation of the Saudi Arabian-backed Vision Fund has completely changed the landscape of private, global technology investing and threatens to more than halve the returns of all venture and growth investors in tomorrow’s most promising companies.’

He concluded: ‘For Sequoia and its longtime Limited Partners, the presence and tactics employed by the Vision Fund present the greatest long-term threat to the health of our business since our formation in 1974. We can either accept this as the new world order or choose to address it. As Mike Tyson once said, “Everyone has a plan until they get punched in the face.”’

At one minute past noon, Moritz pressed the send button. His ‘Freedom Fund’ email was a call to action: a plea to his fellow partners at Sequoia, one of the top VC performers in the US, to raise $20bn to counter the threat from the Vision Fund. And so began an arms race in the world of venture capital. Over the next four years, in the middle of a bull market for technology stocks, Andreessen Horowitz, Benchmark, Sequoia, Silver Lake and Tiger Global deployed ever greater capital in order to compete with SoftBank’s gargantuan war chest. The spending reached levels never seen before in Silicon Valley.

Viewed from the previously unchallenged venture capital world, there were several things unusual about the Vision Fund. The fund’s focus was not on start-ups but ‘later-stage’ companies. Another oddity was the way the Vision Fund was financed. Just over half the capital was in the form of preferred equity – a debt-like instrument that paid the owner a fixed return of 7 per cent regardless of the fund’s performance. In a typical VC fund, the Saudis and the UAE as Limited Partners (LPs) would never have received interest or dividends on unrealized returns, though they would have had priority on return of their capital. In this case, the LPs received a steady return on investment via the 7 per cent coupon, with a further component to have more upside – a very favourable arrangement.

This led in turn to a paradox: despite its size, the Vision Fund was actually quite strained financially. First, it had to buy stakes in target companies at a time of historically high valuations; second, it had to finance the ongoing cash losses of these firms, above those met by the initial capital injection; third, it had to fund the coupon on the preferred stock award to the Limited Partners. Despite the notionally long fund life of 12 years, plus an optional two years, the Vision Fund and its investee companies in aggregate were burning up cash quite fast. From the outset, therefore, the pressure to crystallize profits – from divesting stakes – was far higher than in traditional VC funds. ‘We were always doing things in a giant hurry,’ recalls one former Vision Fund executive.

By far the biggest surprise was the man chosen to head the Vision Fund: Rajeev Misra, the ex Deutsche Bank credit trader. He had no track record in venture capital. Then again, if the game was about financial alchemy, Misra fitted the bill. In his wilder moments, Masa confided that his dream was to raise not one, not two, but ten Vision Funds, each piled on top of the other. It sounded delusional, but Masa carried on regardless. The result, he claimed, would be $1 trillion under management, the most powerful asset management and venture fund in history. He would be the capital market. And he would be the richest person in the world.

What Masa missed – or deliberately overlooked – was that Misra was no manager. The Indian possessed a roguish charm; but he had little sense of time, his manner was often deliberately rude, and he was an inveterate schemer who viewed encroachments on his turf as a declaration of war. He was also seemingly incapable of writing down anything on paper, preferring to communicate by text, WhatsApp or Signal.

Shortly after the Vision Fund was officially launched in May 2017, Misra toured the major Silicon Valley VC firms. He was accompanied by four or five colleagues, often fellow Deutsche Bank traders or investment bankers like himself. One partner at Andreessen Horowitz remembers Misra wandering in sockless, vaping an electronic cigarette and behaving like he owned the place.

‘I remember thinking: how did this happen?’ said the VC partner. ‘All of these guys are full of shit.’

Around this time, Bill Gurley, a six-foot-nine former college basketball star, remembers Masa muscling into a fund-raising event for Uber, the ride-hailing firm. Gurley’s VC firm Benchmark had led the Series A financing for Uber six years earlier. Masa snapped up a 15 per cent stake, diluting Benchmark’s position; but not before threatening to put his money into Lyft, Uber’s chief rival in the US. Gurley likened such conduct to asking for protection money. Except the protection was not forthcoming. When Uber later diversified into food delivery, Masa invested $1.5bn in DoorDash, the San Francisco-based competitor.

‘You ended up owning less of the company and carrying more of the risk,’ Gurley recalled. ‘It was a horrific experience.’

Not all the deals were bad. Between 2017 and 2020, the Vision Fund had stakes in ARM, Coupang, Didi, DoorDash, ByteDance, the Chinese internet giant and founder of TikTok, as well as Guardant Health and Roivant Sciences. Both exits from Coupang and Didi produced excellent returns, but overall, says one Vision Fund adviser, ‘There were too many shitburgers.’ 

By the end of 2016, Masa had assembled the world’s biggest war chest. He had received commitments for $60bn from Saudi Arabia and Abu Dhabi as part of his SoftBank Vision Fund which, at $98.6bn, had fallen just short of its original target. This hardly mattered because the mainstream media invariably parroted Masa and rounded up the figure to $100bn. Now he was desperate to put his money to work. ‘He would often tell us: “I want SoftBank to be the most valuable company in the world,”’ says a long-time SoftBank executive. ‘He wants to be an emperor, not just a CEO.’

Masa envisaged a high-tech ecosystem spanning the globe with SoftBank sitting at the centre. At the height of the dot-com bubble, he presided over a semblance of empire. At a cost of around $4bn, he had accumulated minority stakes in more than 200 internet companies in the four major continents, from Latin America to Europe, the US and Asia. The dot-com crash obliterated his global vision; now, thanks to Arab billions, he had a second chance to reassemble an empire.

Yet the practical obstacles to success were real. Finding appropriate candidates for investment was hard enough. Doling out sums between $100m and $200m implied Masa meeting hundreds of individual founders to check their credentials. Even with Masa’s legendary stamina, which enabled him to work seven days a week, 18‒20 hours a day, often flying on his private jet through multiple time zones, that was a physical impossibility. Crucially, much larger sums – $500m or more – were required to move the needle in a giant fund like the Vision Fund. The target companies couldn’t be start-ups as such; they were ‘later-stage’ companies, turbocharged for growth by the injection of SoftBank cash.

Misra’s band of brothers relished flouting Silicon Valley conventions such as the ‘term sheet’, a non-binding agreement between founder and VC firm. Term sheets cover valuation, size of investment, voting rights and anti-dilutive provisions – all vital considerations for the entrepreneur. Once signed, the founder-entrepreneur is legally obliged not to ‘shop the deal’ to other investors. Nor, once signed, should the term sheet be renegotiated or ‘retraded’. But the Vision Fund often took full advantage of its superior financial power. One case involved Light, an advanced camera developer co-founded by former US Marine Dave Grannan, a veteran who served in Desert Storm and Desert Shield.

‘My experience with the Vision Fund was like putting a three-year-old to bed,’ he said. ‘Every time you thought you were done, they started screaming for another cookie.’

Grannan, a Palo Alto-based serial entrepreneur, launched Light in 2013. His company developed pocket-sized cameras for smartphones and other commercial applications. By the time the Vision Fund turned up in late 2017, Grannan was in Series D, a fourth round of funding. After initial contacts with Vision Fund executives, Grannan was summoned to Tokyo for a meeting with Masa in 14‒15 February 2018.

The ex-marine was excited to meet one of the world’s most charismatic investors, but it turned out to be a big letdown. Masa asked a few perfunctory questions, but appeared bored. The two men shook hands on a deal where the Vision Fund would invest $105m. Grannan was dispatched back to the US to work on a term sheet.

On Monday, 8 March 2018, as he was pacing on a treadmill in the Bay Club gym in San Francisco, Dave Grannan took a call from Akshay Naheta, a former Deutsche Bank trader and Misra protege. The deal was off, Naheta declared. Grannan was stunned. So was the Light board, which included several Silicon Valley veterans. With only eight weeks of cash in the bank, Light was running dangerously short of cash.

After frantic reworking of the numbers, Grannan was summoned back to Tokyo for a second meeting with Masa. It was scheduled for an hour and a half, but lasted barely 20 minutes. This time, Masa said, SoftBank would invest $105m in tranches only, in return for a near-30 per cent stake in the company. Unable to turn to other investors because of the lockup clause, Grannan had to accept SoftBank’s terms: ‘It was a horrible, horrible time.’

Three months later, in July 2018, Light closed on the deal and secured an initial $40m funding. Grannan was summoned again, this time for dinner at Masa’s palatial home in Woodside, California. Terry Gou, the Foxconn billionaire and an early investor in Light, was present, alongside Rajeev Misra.

‘It was the Masa and Terry show,’ says Grannan, who watched both billionaires vying to take the credit for backing Light. Masa and Gou went back more than 20 years when the SoftBank boss was looking for a cheap manufacturer of set-boxes for his satellite TV joint venture with Rupert Murdoch. In the intervening years, Foxconn had become wildly successful thanks to an exclusive contract to manufacture the Apple iPhone in low-cost factories in China. Gou’s relationship with Masa was a case study in mutual dependence and one-upmanship.

For Grannan, the only good memory was when Masa insisted – astutely – that Light’s futuristic, three-dimensional camera technology was more suited to business applications like driverless cars than consumer products like smartphones. In hindsight, that was the high point of their relationship. In late July, Grannan received a text from Akshay Naheta, about whom more later.

Light was showing a shortfall on its projected revenues. This was hardly unusual for a youthful enterprise which had just had its business plan blown up, but Naheta flew into a rage.

‘This is complete horseshit,’ his WhatsApp message ran. ‘You guys have zero integrity.’

And then came the words which Grannan kept as a bitter-sweet souvenir on his smartphone. Words which Grannan never believed would come out of the mouth of a venture capitalist.

‘I hope you go bust.’ DM

Gambling Man: The Secret Story of the World's Greatest Disruptor, Masayoshi Son is published by Atria/One Signal Publishers and available on Amazon.