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Keith Rabois isn't a Fan of How SoftBank Invests its Money
Keith Rabois knows a thing or two about investing in companies and helping to grow them, having done both with some of the biggest names in tech, including PayPal, LinkedIn, Square and Yelp.
And so, it’s worth paying attention to the Khosla Ventures partner when he’s leveling criticism about someone else’s investment strategy – especially when that someone else happens to be investing legend and SoftBank CEO Masayoshi Son. Rabois was specifically critical of the approach taken by SoftBank’s $100-billion Vision Fund, which he sees as following the “mentality of throwing money at companies” in the hopes that they succeed.
Rabois made his comments during an interview with Recode’s Kara Swisher. One caveat: The interview happened prior to SoftBank significantly cut its planned investment from $16 billion to $2 billion, with the former figure perhaps fueling some of Rabois’ criticism.
“I personally believe that scarcity to capital is a good thing, that desperation breeds innovation, and that you need constraints to actually execute well and innovate,” he added. “If someone gives you this pile of money, I think it creates a lot of excuses and soft thinking.”
He noted that he likes the chances of some of the companies SoftBank has invested in, objecting more to the many billions of dollars the Vision Fund (which is itself heavily funded by Saudi Arabia) has injected into the Valley.
“The mentality of throwing money at companies and making them successful just doesn’t work,” Rabois said. “I’ve never seen real examples of just, you take money and you crown a winner. That’s the philosophy, which I don’t believe that works. I think that’s the whole history of Silicon Valley, is that these upstarts with very limited resources and a bunch of misfits have rearranged every single industry, and they’ve done it over and over again.”
Rabois added that SoftBank’s Vision Fund has “deferred some companies’ aspirations of going public,” which he says has “created a crutch for other companies that really don’t have an economic model that’s working, and it’s created a bank account that people can tap into and not have to solve their business problems.”
Recode points out one “slightly awkward footnote” to Rabois’ criticism: He is the executive chairman of online real estate-buying marketplace startup Opendoor, which received a $400 million investment from SoftBank last year. So, yeah.
To be sure, Rabois isn’t the only VC to question SoftBank’s influence on the IPO market. Oaktree’s Howard Marks told CNBC last year – after SoftBank’s Vision Fund invested billions in Uber – that the “willingness of investors to invest in a shockingly large fund for levered tech investing with a questionable structure is a further indication of an exuberant, unquestioning market.”
Meanwhile, venture capitalist Bill Gurley, who is an investor in Uber, wrote a blog post back in 2016 – before the Vision Fund even came on the scene – that shares the sentiments Rabois has about pouring money into startups.
“Founders have come to believe that more money is better, and the fluidity of the recent funding environment has led many to believe that heroic fundraising is a competitive advantage,” Gurley wrote. “Ironically, the exact opposite is true. The very best entrepreneurs are relatively advantaged in times of scarce capital. Loose capital allows the less qualified to participate in each market.”
You can read or listen to Recode’s full interview with Rabois here.