SoftBank Takes $4B Stake in Nvidia
bloomberg.com
bloomberg.com
I'm trying to understand what SoftBank's endgame is here...
Even the VC industry is a drop in the bucket compared to the broader PE industry.
Their $100 billion tech fund is too big for the kind of deals that the typical VC invests in. It's pretty clear this is going to have various strategies. Lots of small investments in startups, buyouts like they did with ARM, and these minority stakes in public markets.
How do we know it doesn't work?
Also, why give $1 million to 4000 startups when you can put more wood behind the arrow of your best ideas? The point of active management is to generate alpha, doing so requires superior analysis or some other "edge".
It's not clear to me that, starting from here, NVidia is going to be a fast-growth company - especially not compared to a group of startups.
why do they need to make any decision at all - if it's like lottery, why not invest in all 4000, let it run wild? The survivors after their money runs out are the good ones.
It was accepted wisdom that you had to pick individual stocks until Vanguard popularized the index fund and now it's accepted wisdom to do the opposite.
There's a reason early stage VCs do dd, it's to weed out complete garbage which wouldn't ever possibly do any return. Probably it is not worth scaling that and easier and more measurable to just stick such big amounts of money into later stages.
I would also assume the risk would be lower to give 2000 people $500,000 so they could hire people ($250,000 is only good for two-four person teams for maybe 2 years? Excludes hardware/travel if they are building something other than software products.)
Not sure how much capital each got, but I guess it's similar to what you were thinking.
http://www.goldmansachs.com/citizenship/10000-small-business...
IIRC, Japan isn't particularly culturally friendly to startups. That probably surfaces itself in the leadership's business decisions.
It's quite the contrary.
Japan, or at least its entertainment industry and pop culture, is full of entire franchises started by minor, independent artists and coders, aka doujins [0]:
> amateur self-published works, including manga, novels, fan guides, art collections, music and video games. ... Of the $1.65 billion of the Otaku industry in 2007, doujin sales made up 48% ($792 million).
WHY is even a physical Silicon Valley still necessary?
One could argue that the doujin way is a better launchpad for a wide variety of ideas than VC-funded startups:
People, especially young people including many females, create something from the comfort of their bedrooms, without any pressure (like many software/game devs of the 1980s), other people enjoy and even improve their products, and if they get popular enough then big companies may turn them into proper franchises.
Why doesn't the US foster that kind of environment more? Why does everything have to be a company with millions of dollars? In fact, most of the Western internet is actually hostile to young artists and developers..
More than...what, exactly? Vastly more people do what the startup scene dismisses as "lifestyle" small businesses than VC-funded startups.
How do we recreate the bedroom coder and garage inventor culture of the 80s that got this industry and world here in the first place?
We don't even have devices that you can code on out-of-the-box, anymore...
You forgot to mention it's mostly because doujin is pornographic in nature. That's why it's so big. Now if you were to classify pornography in a separate category, well the numbers would look much lower.
Many visual novels too, though they may include sex, aren't really focused on porn, just like the many Hollywood movies that contain sex scenes are not "porn."
https://news.ycombinator.com/item?id=14400642 http://www.kalzumeus.com/2014/11/07/doing-business-in-japan/
As some other people have mentioned, I suspect SoftBank has a specific goal in mind and is buying up companies that give them particular capabilities. They're not just investing with the goal of getting a return. What their ultimate goal is, I'm not really sure, though.
YMMV, though, as I've only read and discussed the topic and not experienced it myself.
Interestingly, one of the reasons I decided not to open a brewery is similar to frustrations I've heard about in the west. You can't (or couldn't -- I think these laws are in the process of being changed) build a really small brewery legally. You had to produce at least 600 hl a year. I couldn't self-finance that kind of operation (I might be able to brew that quantity, but there is no way I would have time to sell it). I would have no trouble raising up to $1M but nobody willing to fund that is looking for a modest return. They want to see expansion plans right off the bat. So this means having plans to build a large factory in the next 10 years. I like brewing beer. I don't want to organise a large industrial factory :-)
Probably the same reason I'm still a programmer and not running my own startup...
It's hard to imagine a scenario where Nvidia is out of business in the next 5 years and very easy to imagine one where they are applying their accrued chipmaking expertise to other areas for a marginal advantage.
To which the answer is probably "There aren't 100 YCs worth of good ideas + support resources / networking opportunities out there."
Softbank has telephony networks and robots manufacture. It does make some sense.
Aren't their fabs outsourced to TSMC?
About $10 trillion USD.
Same reason why the Chinese are buying up real estate in the US and Canada.
I'm highly doubtful. I bet Apple and other holders of huge wealth spread their wealth over many asset classes, with cash not being among them.
In contrast, Apple and Qualcomm sell product all over the globe and are currency diversified by default. Softbank revenue on the other hand is overwhelmingly in yen, hence the vast diversification into foreign companies. Since they don't export much they also miss out on higher margins internationally if the yen were to fall.
Also, the BOJ's negative rate policy allows SoftBank to raise cash cheaply with uncommonly low yield A-rated bonds, effectively subsidizing their foreign buying spree.
Softbank also has the balls to make investments like this. The ARM investment was basically a bet on everything hardware-based for the next 20 or 30 years, so clearly they're good at picking the strategic foundations.
Traditionally, Japanese companies and culture is extremely conservative and consensus driven, and one of Softbank's advantages is that they make these calls.
The same applies with NVidia. You can't start a GPU company because they are the GPU Mafia. They'll run you out of business before you even get a foothold with patent suits, licensing fees, etc, etc, etc.
That's why you have startup taxi companies literally breaking laws everywhere they go. Because the laws were, in part or entirely, set up to protect established interests.
Softbank then, is working inside this system, from the standpoint of the Capitalist... the man with all the money. They're buying up corner stores, because in the long run, it is guaranteed to pay them back. Even if poorly run, it will pay off for years because of the lack of competition. Capitalism is set up to favor the owners of capital.
Their printing company, not their 3D printing company.
Comically, be sure to let ARM know that that's how things work. Founded in 1990, they shouldn't exist today if what you're claiming is true, Intel should have wiped them out of existence 20 years ago.
And be sure to let nVidia know that's how it works, 3DFX (given their early lead) or ATI should have wiped them out of existence early on. Or perhaps any number of a dozen other early big corporate leaders in graphics technology.
And be sure to let AltaVista, Lycos, Yahoo, Microsoft, AOL, Excite, et al. know that's how it works, as they should have wiped out Google.
And be sure to let Walmart, Target, Sears, JC Penney's, B&N, Waldenbooks, Borders and a hundred formerly major / soon to be bankrupt retailers know that's how it works, they all should have wiped out Amazon if your premise were true.
And be sure to let Microsoft know that's how it works, as they should have wiped out Redhat in ~1999.
And be sure to let MySpace & Friendster etc. know that's how it works, as given their extreme scale vs Facebook in 2004, they should have wiped them out.
And be sure to let Atari know that's how it works, as they should have wiped out Nintendo.
And be sure to go back in time and let Steve Jobs & Co know that's how it works, as given Apple's early size they should have wiped out Dell, Gateway, and dozens of other IBM compatible clone makers before they took over the PC market. Since that's how things work and all.
And be sure to let Netflix know that's how it works, so two dozen other massive global media & tech companies - from Comcast to Disney - know they should have wiped them out.
And be sure to let Oracle know that's how it works, they should have already wiped out Salesforce.com (and Workday, and and and and).
This list doesn't stop going.
The op premise is trivially easy to prove wrong: it requires infallibility / perfect judgment on the part of competitors. That one thing alone is enough to end the argument put forth - and there are numerous other issues with it.
Survivor bias, and the blindness to survivor bias, does keep going.
But more realistically, we can list some successful outliers in a sea of tens of thousands of failed newcomers. It's very difficult indeed, but not impossible.
How many chip companies have seriously threatened Intel in 35 years? Not enough that it makes sense to invest in any of them but Intel. Picking ARM would have been pretty darn lucky.
nVidia is a positive outcome vs Intel. So is Apple (after all, they sell a couple hundred million units per year of compute devices with their own customized processors, which directly threatens Intel's prosperity, of course thanks again to ARM).
Or see: McDonalds vs the hundred new burger companies (Five Guys, Shake Shack et al) that have cropped up in the last 10-15 years.
Or: Anheuser Busch AmBev vs the thousands of independent brewers that have cropped up and taken an increasingly large slice of a formerly stagnant market (thanks to government regulations) with finite physical shelf space. Talk about a perfect example of how wrong the op premise is.
Tell GM & Ford not to worry about Tesla and the electric car revolution, because they can just kill off Tesla at any time (and yes, some things like that did occur, such as Tucker - thanks to government abuse in the market).
To simplify everything all patents should last 5 years max.
So nobody should ever be able to sue Amazon for infringement? Do you think other companies accountants would have trouble making profit vanish to avoid lawsuits?
>survivors prove the op's premise wrong
Nobody said it was impossible, except you. Recharacterizing a statement so you can knock it down is called a strawman fallacy. You may have heard of them.
You actually point out many examples that reinforce my point. Extremely poorly run companies like Yahoo, Sears, AOL, they're all still around. Microsoft has been poorly run for nearly two decades. It is still here. MS long since lost the server market to Linux, but that didn't stop them from throwing wrenches by proxy with SCO. MS failed miserably trying to approach the smartphone market, but that doesn't stop them from collecting licensing fees on every Android phone sold. Oracle too is trying aggressively to collect some of that Android lucre.
That's how the system works. It's winner take all. Pareto distributions everywhere. Quality products, services, and businesses are wiped out and destroyed by the rent seekers. Long after the rent seekers ceased to be productive contributors to the system, their bloated zombie corpses carry on, sucking the life out of anything new that was lucky enough to survive.
You seem pretty emphatic that it's impossible. Also, before you call Nvidia a rent seeker you might wish to look at the amount they spend on R&D and what they're doing in self-driving cars and deep learning.
AltaVista was a marketing stunt by Digital Equipment Corporation to show off how awesome the 64 bit Alpha processor was.
AltaVista was a great (I'd argue the best) search engine up until Google. More importantly, it wasn't a marketing stunt, it was the product of a research project and some really great, bright engineers.
AltaVista was created by researchers at Digital Equipment Corporation's Network Systems Laboratory and Western Research Laboratory who were trying to provide services to make finding files on the public network easier.[3] Paul Flaherty came up with the original idea,[4][5] along with Louis Monier and Michael Burrows, who wrote the Web crawler and indexer, respectively. The name "AltaVista" was chosen in relation to the surroundings of their company at Palo Alto, California. AltaVista publicly launched as an Internet search engine on December 15, 1995 at altavista.digital.com.[6][7]
At launch, the service had two innovations that put it ahead of other search engines available at the time: it used a fast, multi-threaded crawler (Scooter) that could cover many more webpages than were believed to exist at the time, and it had an efficient back-end search, running on advanced hardware.
I can justify considering it "marketing" though. They didn't consider it a way of making money, so from a business point of view it was basically a way of showing how good their research was and how powerful their hardware was. (Compare to, say, Deep Blue, or AlphaGo today.)
And to be fair, Google didn't start out knowing how they would make money either.
https://searchenginewatch.com/sew/study/2064954/where-are-th...
Now, from my memory, AltaVista and HotBot? were the key go to players outside of Yahoo. Google was a tiny fringe player at first, until, well of course we all know how that went. So AltaVista was definitely a key player at a very significant time in Internet history.
Turns out one of the many flaws in the op premise, is that you can invent a superior product, or provide a superior service, in an existing category and prosper accordingly. The iPod should have never existed otherwise, there were plenty of existing mp3 players.
It pertains to the traditional physical space as well as tech. Pizza companies as an example have been killing each other for a long time, new ones rise up routinely and displace weak competitors. If the op premise were correct, that'd be impossible. Pizza Hut & Domino's were founded a quarter century before Papa John's.
For the ones that do, like nVidia or Google. The technologies are orders of magnitude more complex now than when they took over their competitors.
We usually call that Crony capitalism. Which is, not really capitalism.
And where do people "usually" call this "crony capitalism"? In fact, I tend to see this term only echoed around libertarian (the property kind, not the social kind) corners of the web.
It is also important to remember that natural monopolies can very easily form, and that the tyranny of property ownership isn't much better than the tyranny of the state granting various benefits to property owners. Proudhon in What is Property goes into this and Oscar Wilde talks about it in his essay The Soul of Man Under Socialism.
Why is the crony vs 'not crony' distinction useful, and in what ways would a 'pure' capitalist society alleviate the problems caused by crony capitalism, including but not limited to the difficulty of acquiring sufficient capital to start a business or firm, dealing with anti-competitive behavior arising out of natural monopolies, the destitution and poverty caused by the extremely low cost of labour-power in certain parts of the world?
Please don't feel as though I'm attacking, I want to learn more about your ideas.
https://www.reddit.com/r/libertarianbestof/top/?sort=top&t=a...
Check out the sidebars for 10-20 more subreddits specifically dedicated to these topics.
https://www.nytimes.com/2015/09/20/opinion/is-big-tech-too-p...
Scare quotes should be required for that phrase. "Free" market.
Literally anyone with a couple million dollars can put together an ASIC design team in a matter of months, design a functioning GLES2 GPU which gets acceptable performance, phone up a semiconductor manufacturer, and pay them about half the money to open a run for them. But even for that low bar, there is already an economic advantage to licensing somebody else's chip. When you start getting to higher feature levels and higher performance targets, the amount of real work required to design GPUs is considerably higher.
That said, if you have a few billion dollars to pour into an R&D effort, you can definitely open up a GPU shop, and no GPU mafia is going to be able to stop you.
They also hold the patents on simulating physics on a GPU and a billion other patents.
Same goes for NVIDIA.
AMD and NVIDIA violate each other's patents all day long and many more they don't sue each other since that would be a legal balckhole for both companies.
But they will we very keen on sueing any new player.
Intel licenses a patent portfolio from NVIDIA currently for legal protections, and Samsung and Qualcomm license their GPU IP from AMD.
Apple may win in the end, it's capital vs capital. A small startup trying to steal away that Apple contract from Imagination with a innovative incredible product though; They'd be properly crushed into dust for even dreaming about it.
I agree with all three of your points. Let me take a different tack to see if this makes my point more clear. Apple sued Samsung over rounded corners. The gall of them. As if anyone can own the concept of rounded corners.
Apple shouldn't be allowed to prevent other companies from building phones with rounded corner designs.
Imagination shouldn't be allowed to prevent other companies from building phones with GPU designs.
Clearly, both things happen. There are lots of phones now with rounded corners. Lots of phones with GPUs. But well placed litigation can hobble your nearest competitor or destroy a small one. The result is massive losses of productivity that could have enriched society.
All this thanks to the Capitalist idea that someone can own rounded corners or GPU designs simply because they have the most money. Capitalism rewards those with capital, not those who work hard and add value to society. Those two things are not mutually exclusive, but contributing to society is not a requirement and frequently does not occur.
Theoretically, a single super capitalist or small group of them could corner the market on everything and be rewarded for no other reason beyond ownership. Together, they could stop all progress. With companies like Apple sitting on $200,000,000,000 overseas, but failing to ship a new "pro" desktop since 4 years ago, this theoretical situation looks a lot more real every day.
From Imagination's perspective, rather than changing to different technology, Apple are trying to reimplement Imagination's technology, with ex-Imagination engineers, without paying them.
Whether Imagination are right about this or not, I don't think this is a clear cut case of patent bullying.
The economies of scale and necessary R&D investment needed to be competitive are the primary things preventing new upstarts from making an impact. This is because the industry has matured.
If it really was the case that high risk startups were being systemically under valued such that an investment into YCombinator companies lead to greater returns than other investments, other market participants would have likely already exploited/corrected it.
This is often called the no arbitrage principle.
If someone invests into large companies it might indicate they hold the opinion that it swung too far in the opposite direction and the market is now overvaluing small companies relative to the large.
In this case SoftBank is specifically investing in Nvidia instead of a segment at large indicating they likely hold a very specific opinion. It probably wouldn't be correct to use this to say anything on their opinion to the value of something like YCombinator.
In a little over a year it went from $27 per share to $139. Even with deep learning chips it looks like a bubble. I guess by the time we hear those news Softbank may already be considering selling some shares and they want just this news to spread to prop up the value.
I think you seriously overestimate console market. Back in 2011 Sony reported 56 million PlayStation 3 units sold and Nvidia made $500M in royalties from it.
https://www.extremetech.com/gaming/150892-nvidia-gave-amd-ps...
Considering there is a lot more alternatives in SOC market now I seriously doubt Nvidia margins become any better. I don't mean that $500M is little amount of money, but it's simply can't justify market cap growth.
UPD: My bad, there actually some data on it and I can be wrong:
http://www.gamesindustry.biz/articles/2017-05-10-nintendo-sw...
Though I still don't think growth can be really related to console itself.
Today, with the stock up more than 250% in the last 18mo., the implied market size (and market share) estimates in the stock are already pretty ambitious. In my opinion, they're not too ambitious, but the question now becomes, when will it become clear that they are conservative? What will it take? SoftBank has a long time horizon, they're comfortable waiting for when this happens, whether it's in 4 quarters if datacenter growth grows from even these remarkable levels or in 4 years when the autonomous driving market with be beginning to take shape...
https://www.fool.com/investing/2016/09/26/will-the-nintendo-...
https://seekingalpha.com/article/4045214-nvidia-short-opport...
Personally, I love $NVDA. Great products, superlative engineering and management. I believe Masayoshi-san's thinking a long time horizon for this investment. Cloud GPUs are eating software. $NVDA's 100 Tflop Volta GPU could be a monster seller. This is a bet on a new revolution.
https://www.forbes.com/sites/greatspeculations/2017/02/21/as...
I am not sure I would characterize a successful negotiation as Sprint acquiring T-Mobile at this point.
[0]: http://www.investors.com/news/technology/t-mobile-capital-st...
It's also not a bad idea to invest in multiple competing technologies and companies to reduce risk when you believe in the industry as a whole.
0: http://www.independent.co.uk/news/business/news/softbank-gro...