SoftBank is a bit like Willy Wonka.
Companies lucky enough to pique the interest of the Japanese bank could find themselves catapulted into a different world overnight. A world that could see their fortunes change and businesses boom at the click of a pen.
Since the creation of a $100bn pool of cash reserved for tech called the Vision Fund in October 2016, SoftBank has taken companies under its wing and injected eye‑watering sums of money into them to create a collection of unicorn companies – 37% of firms listed under the Vision Fund’s portfolio are now valued at more than $1bn.
SoftBank is a bit like Willy Wonka.
Companies lucky enough to pique the interest of the Japanese bank could find themselves catapulted into a different world overnight. A world that could see their fortunes change and businesses boom at the click of a pen.
Since the creation of a $100bn pool of cash reserved for tech called the Vision Fund in October 2016, SoftBank has taken companies under its wing and injected eye‑watering sums of money into them to create a collection of unicorn companies – 37% of firms listed under the Vision Fund’s portfolio are now valued at more than $1bn.
WeWork is a prime example of how far a company can go with SoftBank’s backing. Since its conception in 2010, the co-working giant has grown to become a worldwide business under the We Company umbrella, with more than 10m sq ft under its name and revenue of $1.5bn. The near $10bn of investment it has scooped from SoftBank so far has no doubt been instrumental in fuelling this exponential growth.
As the Japanese banking giant’s appetite in investing in real estate continues to grow, the big question is: what will make it open its cheque book? Justin Wilson, Vision Fund partner and the man behind the majority of proptech investment decisions, lifts the lid on what it takes to win a golden ticket.
Ripe for disruption
Like many VC investors, Wilson believes that now is real estate’s time to shine, with the market proving ripe for disruption. He adds that, given the fact it is in the early stages of its tech revolution, real estate gets a “bad rep” for being particularly slow in adopting technology.
This is not necessarily a bad thing, he adds – more an indication of where the bank sees the sector in terms of its adoption cycle. “I think we look at [real estate] as a relatively early innings ball game,” he says.
Wilson adds that this is particularly true of commercial real estate, in SoftBank’s experience, as the residential sector is “a little further along” in its attempt to leverage technology. Indeed, it is in the residential sector where Wilson sees “a lot of opportunity” to invest.
SoftBank has already piled money into numerous residential proptech companies: in September last year, it signed $400m for online residential marketplace Open Door; in February this year, it led a Series D funding round in which $200m was invested into Clutter, an online service which can move, donate, sell and rent customers’ belongings on their behalf.
WeWork aside, SoftBank’s investment into commercial real estate has been more limited. “From SoftBank’s perspective, we have struggled with finding the type of growth opportunities on the commercial side of real estate,” says Wilson.
“We have tended to see a little more fragmentation in this sector, plus a lack of full‑staff solutions and innovators that are solving the problems that a lot of operators are experiencing. So, it has been hard to find the type of very late-stage scale companies that actually fall within what we tend to look at.”
That might have been the case so far, but what about Vision Fund’s key focus for the future?
Investment focus
For Wilson, data is key. Proptech companies that leverage data to spot problems and provide solutions are those which excite SoftBank the most.
“From my perspective, data is kind of the fuel for the engine rooms for all of these businesses. Opportunities should be looked at from a data-first perspective,” Wilson says, adding that he believes there is going to be a “huge push” in these data-driven start-ups.
He gives the example of cloud kitchens, an emerging asset class, to demonstrate this point. Data collected on the number of Chinese food orders could show that there is significant demand for this cuisine in west London, for example. With this data, there is an opportunity for proptech companies to set up flexible kitchen space for restaurant owners looking to tap into this regional demand.
Cloud kitchens are picking up pace in places such as Singapore and India. Food tech start-up Grain was founded in 2014 in Singapore, and Rebel Foods (formerly known as Faasos) has been active across India since 2011 and operates 205 delivery cloud kitchens.
These companies have already whetted the appetite of hungry investors. Grain raised $10m in its Series B funding round, led by Singha Ventures, while it was reported in August that Rebel Foods raised $125m in its Series D funding round.
As to how SoftBank might deploy capital in this sector, Wilson remains tight-lipped. But the fact that these sorts of asset classes are firmly on the bank’s radar speaks volumes.
Staying stable?
It is not just new, growing sectors that pique SoftBank’s interest, though. At the other end of the spectrum, there is a focus on stable sectors, given the cyclical nature of the real estate.
“I have tended to be a bit more attracted to some of the subsectors that are going to be a little more resilient through downturns,” Wilson says. Here he points to the likes of Build‑to‑Rent (multi-family in the US). “Looking back at some of the cycles on residential, I think rentals tend to be one of the more resilient categories,” Wilson says. “So we do have an eye towards companies like those delivering multi-family development that are going to withstand a softening macroeconomic environment a little better than the rest of the industry.
“I think technology companies that are able to drive meaningful efficiencies and operational scale leverage also fall within that category, because I think as you start to see softening with margins compression on the businesses they will be looking more than ever to find the right types of partners.”
Organic growth needs to happen
While there is plenty of opportunity to advance the adoption of technology in property, Wilson has no qualms over voicing his surprise that the real estate industry isn’t doing more to drive this from within.
“There is a tremendous opportunity through the funds and individuals… to drive that innovation to organisations that doesn’t exist other areas,” he says. “I’m just struck that there is not more that’s happening organically.”
Wilson taps into a well-known issue that property faces. It has been – and continues to be – slow to embrace technology. But with investment giants such as SoftBank more than ready to dig deep into their pockets for the right investment, real estate would do well to realise that advancing technology could be the key to winning a golden ticket of their own.
SoftBank’s most notable investments – so far
WeWork
WeWork is arguably SoftBank’s property golden child.
In 2017, $4.4bn was pumped into the co-working giant, which grew to around $5.2bn a year later.
This in turn raised the co-working giant’s liquidity to $6.4bn by the end of the third quarter of 2018.
In October last year, rumours were circulating around the market that SoftBank was mooting the purchase of a majority stake in WeWork for an eye‑watering $20bn.
However, these plans appeared to have been dramatically scaled back in January of this year, when SoftBank announced it was in talks to invest $2bn.
Katerra
Construction tech start-up Katerra, which provides a digital one-stop-shop platform for construction – covering design, build, minimising costs and hitting project deadlines – caught SoftBank’s eye back in January 2018.
It was at this point that it invested $865m into the start-up, understood to be one of the largest real estate tech deals ever struck, aside from WeWork. Following the investment, Katerra chief executive Michael Marks said the company’s valuation stood at $3bn.
In January 2019, it was reported that SoftBank’s Vision Fund was planning to lead a $700m funding round of financing for Katerra.
Katerra is also building a number of modular construction factories, targeting the student accommodation and senior living sectors.
Compass
In what was reported to be the largest real estate technology investment at the time, SoftBank’s Vision Fund invested $450m in online property platform Compass in December 2017.
Compass used the funding to expand its presence across major cities in the US.
Opendoor
Homeflipping company Opendoor received a cheque for $400m from SoftBank in September last year.
In March this year, the start‑up announced it had raised an additional $300m, with SoftBank listed as one of the main investors.
Opendoor is an online platform. People can sell their homes to Opendoor, which will then calculate an offer, conduct home assessments and ultimately sell on the house.
To send feedback, e-mail lucy.alderson@egi.co.uk or tweet @LucyAJourno or @estatesgazette
