In this episode, we chat with Ramzi Ramsey of SoftBank Vision Fund, the iconic $100 billion venture capital fund.  The Fund is not only impressive because of its size but also because of the enduring vision and ambition of its founder, Masayoshi Son, and the team.

Ramzi focuses primarily on direct private company investments in the enterprise software space.  We cover quite a bit of ground in this conversation, from the genesis of SoftBank to the founding of the Vision Fund and to how Ramzi and his colleagues quickly have significant impact on the companies they invest in.

Ramzi graduated from Carnegie Mellon University and earned his MBA from Harvard Business School.

We hope you enjoy the show.

(Hear the full conversation with Ramzi on iTunes or Podcasts.com)

RJ Lumba: Ramzi, a pleasure to chat with you, I really appreciate you taking the time to speak with us.  And for those in our audience who might not be very familiar with SoftBank Vision Fund, can you tell us a little bit about the firm as well as your current role with them?

Ramzi Ramsey: Of course, happy to and thanks for having me today.  First, maybe before I explain the Vision Fund, I think it’s important to digress for a second and just explain the parent company a little bit more and why a fund of this size was created.  So, SoftBank was started about 40 years ago with their computer parts and software store really, that’s where the name SoftBank actually originates from.  The organization moved into trade journals and magazines before becoming the Holdco structure that you see today.  So the company since the 90s has been investing in a bunch of JVs around the world, so Yahoo Japan, Ziff Davis, Alibaba all happened in the 90s.

Alibaba is probably the most famous one, which was an investment that went from roughly 20/30 million dollars to over 60 billion dollars of market cap today, so a pretty nice gain on that one.  The Vision Fund was actually started by Masa in the belief that AI will drive the next wave of technological evolution, much like the internet drove that wave in the late 90s and early 2000s.  So the Vision Fund was created to really accelerate that process of companies adopting AI and new technologies.  And we, just as an organization to help folks understand, cover five sectors in the US; each one has a sector lead, including consumer, fintech, transport logistics, frontier tech.  And I represent the Enterprise Software Group, along with a couple of other colleagues, , I help lead our focus on enterprise software which really means  all B2B application and infrastructure software.

Got it, that’s helpful.  And maybe we’ll talk a little bit about you and your background and then come back to SoftBank Vision Fund.  You’ve got a great  career track record in finance and in particular, investing.  Maybe you could share with us a little bit about your background and then specifically what you’re focused on currently.

So I’ve spent a little over the last decade at two funds primarily, TCV – Technology Crossover Ventures and TA Associates.  I am who I am today because of the training and time I spent at those two funds, some of the smartest people in the industry really  taught me what I know today in software and consumer internet and I still actually collaborate with them quite a bunch. So when the SoftBank opportunity came up there were a couple of things specifically that excited me by it.  First, as I mentioned earlier, there are five sector area focuses in the US, our focus on software was essentially the last of those five groups to get stood up.  So there’s a real  entrepreneurial ability to stand up a group with some other colleagues and build a team around it.  And so that in and of itself, with the brand of SoftBank behind you is a pretty exciting opportunity.  But more importantly actually I don’t think a lot of people appreciate how much SoftBank offers to portfolio companies and  how active of an investor we are today.

So, maybe just a couple of points to hut on that.  Specifically for software, Japan is the second largest IT spend market in the world, much of that is enterprise or software spend.  And funny enough, it is also one of the hardest markets in the world to crack without a local partner.  And so we actually have a JV team and a playbook to help companies access the Japanese markets in situations where it makes sense for them, I think that’s  point number one.

The second one is we actually have a quite sizeable operating partner team where every investment we make gets a dedicated operating partner who essentially helps serve as a go to market engine within our portfolio.  There’s something pretty special about SoftBank and the way that portfolio companies all work together, perhaps you could say it’s Japanese  culturally in the way the portfolio companies work together.

One of the best examples, just to put some numbers to it, one of my first investments when I joined the Vision Fund is a company called the Automation Anywhere, which provides Robotic Process Automation solutions, RPA solutions to a bunch of different industries.  And I think a lot of people actually underestimate the size of the portfolio and they just think it’s the Vision Fund companies, but you have to remember, what I mentioned earlier is SoftBank is a pretty active investor in a number of different businesses globally as well.

And so there’s a similar partnership JV team that helps our businesses access the Latin American market, some of our portfolio companies also help with Southeast Asia.  So to  bump it up a level I think what’s been super exciting for me personally to join is the ability to start the team, I’ve got a lot of resources at SoftBank that can really help companies that we invest in.  And we have that mind share with the best companies in the world and it’s really on us to find them and help them become even bigger and greater over time.

A lot of folks in our audience are either limited partners or family offices – large family offices that invest in the private equity asset class.  And to them, typically analyzing various GPs, General Partners in the market, can get difficult.   It’s sometimes difficult to discern who is actually providing operational expertise.  You mentioned that one of the advantages of a company partnering with SoftBank is the force and speed with which you can act.  And you alluded to this in  your prior commentary, but could you maybe expand on that a little bit?

Yes, of course.  For the LP listeners, I think we’re in a very exciting but also unprecedented time.  We’ve been in almost a decade long bull market.  Tech has been performing extremely well in the public markets and knock on wood, nobody’s got a crystal ball to look forward, but it seems like that trend is continuing and accelerating going forward.  So at a lot of the funds I’ve worked with in the past and now at SoftBank, it’s been a very active management experience, if that makes sense.  And in the event that something happens to the markets, our belief is that those who provide real value will be the ones that will still be able to deploy capital, given the track record of helping companies.  With your specific question on  force and speed with which we act, all kidding aside, we did just invest almost a 100 billion dollars in almost three years, so no one can criticize us for moving slowly.  But that being said, when we find a company we like, we’re incredibly incentivized to move as quickly as we can.

Sometimes our diligence is a little different, right, it sometimes is a little longer than other firms because when we do see that operational benefit, like where we can plug a company into our network, generally we take the time to really explore that out because it really helps the company and it helps ourselves to understand if there is real synergy – is one plus one going to be more than two.  And so there may be some situations where a company is raising money and they’d like an answer in three or four days and sometimes we can  act that quickly.  But the situations we’re really trying to solve for are what are the real relationships that, although we’ve got a lot of capital, what can we do beyond just the capital that we’re providing to certain companies.  So it’s a pretty robust investment diligence  and evaluation process.

The fun quirk is that every company actually does meet Masa and 90% of the time it’s in Tokyo and it’s an opportunity to learn from our leader who has invested in hundreds, if not, thousands of companies over his career.  He’s a self-made successful businessman.  I actually thought that would maybe slow our diligence process down when we would have to ask a CEO, “Hey, would you like to go to Japan or do a video conference?”  And actually nine times out of ten, folks are excited to hop on a plane and go to Japan and we build a day around it where they meet other successful JVs and portfolio companies so it’s a fun experience.

He’s an iconic figure and frequently in the media these days.  It’s interesting, he has a quote on the website about a founder’s ambition and how that determines the ultimate success of the company – I’m paraphrasing a little bit.  But it would be great to hear any insight you have on how his vision and the way he thinks about the world really helps drive SoftBank and its funds.

I think that actually it’s a great comment, it really relates to when companies go and meet him.  We’ve certainly briefed him on diligence ahead of time, but he’s really trying to assess the quality of the man or woman that’s there and what’s in the gut.  Are they there to build a great business or are they there to build an okay business?  And I think that’s really what he’s trying to figure out.

Which areas of enterprise software are you most excited about?

Yeah, there are a couple, probably two or three areas.  I think one in a very broad sense, there’s this tremendous force moving all data and processing to the cloud.  And there have been some tremendous businesses built on that very simple transition.  But there’s a whole environment both on the infrastructure side and on the application and toolkit side that has been created out of thin air that is following that one simple tailwind, the movement  from on prem to the cloud.  So that’s something we obviously spend a lot of time thinking about.

I think the second is the theme of automation, and again, very simple in its concept but if you think of automation for the knowledge worker, and how you increase productivity given the increased compute power that companies now have, the increased tech flexibility that they have.  RPA was just one piece of that, which is obviously a tremendous category growing at unprecedented rates.  But there’s a lot of other themes within automation that we’re spending time in.

And then obviously the theme of artificial intelligence, and I don’t mean to say that in a cheesy way because I can’t count how many companies are .AI and expect an extra zero on valuation because of that.  But we do a lot of work around who are the real AI companies out there and which of them are real businesses as opposed to consultancies or service operations.  We spend a lot of time thinking about that as well.  So those are just a couple of areas where we’re spending some time in.

When we think about the size of the Vision Fund as well as the second one on its way and then tying that to the way Masa looks at companies.  Is there a certain size threshold that an entrepreneur must be able to meet with his or her vision in order to be a good fit for Vision Fund?

I think the one consistent theme has got to be TAM or Total Addressable Market for the company.  And TAM is always a tricky thing, right, there’s future TAM,  what is the possibility in the size of an industry and then there’s current TAM, current spend, bottoms up that you add up.  When we made the RPA investment, the current TAM for RPA is actually not that big, there are a couple of companies that were generating revenue very quickly.  But the idea was that this would be a multi, over 10 billion dollar industry going forward in the longer run.  And so that’s an example of an investment in the industry that has a massive TAM that we think will happen in the future.

Others are existing large markets, so when you think of all of our transportation bets, transport’s a massive current spend category and we’re just trying to reallocate spend from legacy products to newer tech products.  But I think that is the underlying theme of what we’re looking for.  For example, for my specific category for software there’s a lot of wonderful vertical application software companies, perhaps it’s a niche market and would make a great company to run, is a great company standalone and would make a great investment opportunity.  That’s probably less for us, candidly speaking, there are also great LBO plays or even levered investment plays. We’re not really trying to make money off the financial engineering; we’re really trying to make it off the growth of the business.

And so I’d say TAM is the one consistent theme across the portfolio.  Perhaps one other sub theme is for most of our investments we do like to see that there’s some way we can provide some alpha, generate some alpha, provide some synergy to the business.  Can we take them to the Middle East?  Can we take them to Japan?  Can we take them to Latin America?  Can we sell the product in our portfolio?  Can multiple companies work together?

I think the best example actually of this is in transport where we’ve got a mapping investment in Mapbox, we’ve got an autonomous vehicles investment in GM Cruise and then obviously through parts of Uber, there’s a ride hailing investment in DD and Uber and others.  We have a parking investment in ParkJockey; we have vehicles they use, car sales and Auto One.  So, it’s a pretty extensive investment throughout the stack and it provides at least some synergy for some of those companies working together.

As we  draw the conversation to a close, maybe we could chat about what’s next for SoftBank Vision Fund?  Obviously there’s the second large fund that you have underway but broadly speaking where do you think the organization is headed?  We could answer that either at the ParentCo or the funds, is there a long term plan and big vision for where this is headed?

I think it’s continue doing what we’re doing.  We’ve done a lot in fintech, there’s probably more to do.  We’ve done a lot in real estate, there’s probably more to do.  We haven’t done much in agriculture, there’s a lot of other areas that the fund can penetrate from a new, new perspective.  But is there a significant change in strategy or anything like that?  I think we’re going to be focused on potentially the same things we’ve been doing so far.  And we’re super excited about that.

Excellent.  Ramzi, I really appreciate you taking the time, I know our audience will find this very insightful, thank you.

Absolutely, thank you so much for your time.