I'm a fan of Masayoshi Son's audacity. However, the outlandish premise floated in the article (raising $100b funds every few years) is all premised on the back of the freak Alibaba return being repeatable over and over again. That's not going to happen, there's one China and its boom phase is mostly over. The last China-like outcome, was a century prior to that (the US).
I watched Masayoshi Son make the same mistake of incorrect extrapolation, 20 years ago.[1] The pitch - the same one he made 20 years ago - only works while the tide is high, when the tide goes out it's ugly. There were countless articles touting his 300 year plan for the future back then, while he was riding very high on the epic Yahoo returns (at one point his investment into Yahoo was worth something like $44b, a particularly huge return to generate in a short amount of time back then). Alibaba will have legitimate staying power, unlike Yahoo's bubble valuation circa 1999/2000, however it won't change the fact that there aren't going to be endless lines of Alibabas to generate vast returns off of to justify raising $100 billion every few years. Alibaba will prove as rare in China as Microsoft or Google are in the US.
Yes this was and remains my thoughts since the fund was first announced - this whole thing very much echoes the previous strategy in certain respects.
Two key differences:
1. Stage of investment
Last go round Son was writing a vast number of (relatively) small checks in early stage companies before stumbling into late stage investments like Webvan. Standard VC stuff - playing the averages and buying a lot of lottery tickets. Alibaba was only $20MM investment as I recall
This time around he seems to be making massive investments in much later stage companies. What is the rosiest possible outcome for his $7BB Uber investment? and how does this compare to the alternatives for an investment of this size?
2. Makeup of the fund
This article touches on it but important to note that this is not a $100BB pile of equity from the partners. The fund is structured with a substantial debt component - ie the fund needs to pay out a coupon every year so very different structure than typical VC funds. I understand the reasoning behind this but things could get difficult in a hurry should the market take a big turn at the wrong time in the funds cycle.
They started out in close proximity, were identical by 1980, and they ended up 35 years later with a 5x difference between them. Why? Poor choices that India made along the way. The point being, the sort of growth China has seen is not automatic, it isn't a given at all that India will make the right choices that lead to it becoming another economic superpower. It may make the right choices. China was only able to generate that expansion through very aggressive focus on traditional industry and manufacturing. India isn't following anything like the path that China did, I don't see where they're going to generate the extraordinary foreign investment that China did by using old-style manufacturing as a magnet for capital that they could then reinvest into domestic expansion. To say nothing of the fact that that style of industrial empire and manufacturing is disappearing, and that disappearance is going to accelerate with leaps in automation that are happening now. It's being discussed as an advancement trap for developing nations, where the ladder of advancement gets wiped out for developing nations by AI, robotics, etc (eliminating jobs that otherwise could employ hundreds of millions of people in places like India and China).
I watched Masayoshi Son make the same mistake of incorrect extrapolation, 20 years ago.[1] The pitch - the same one he made 20 years ago - only works while the tide is high, when the tide goes out it's ugly. There were countless articles touting his 300 year plan for the future back then, while he was riding very high on the epic Yahoo returns (at one point his investment into Yahoo was worth something like $44b, a particularly huge return to generate in a short amount of time back then). Alibaba will have legitimate staying power, unlike Yahoo's bubble valuation circa 1999/2000, however it won't change the fact that there aren't going to be endless lines of Alibabas to generate vast returns off of to justify raising $100 billion every few years. Alibaba will prove as rare in China as Microsoft or Google are in the US.
[1] http://content.time.com/time/world/article/0,8599,2053732,00...