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SoftBank’s mega-investments made a splash in markets around the world last year, including in the UK’s burgeoning fintech sector: The Japanese company’s $100 billion Vision Fund led two deals that accounted for a quarter of the capital raised by the country’s financial startups.
SoftBank’s outsize transactions in tech companies have raised questions about valuations and whether some firms in its portfolio have too much money. The Vision Fund invested $800 million in Greensill and $440 million in OakNorth, two London-based business lenders, according to industry group Innovate Finance. Those investments made up 25% of the $4.9 billion raised by financial startups (Quartz member exclusive) in Britain last year.
SoftBank and its Vision Fund have faced a wave of media and investor scrutiny lately. SoftBank founder Masayoshi Son is credited with a savvy bet in 2000 on Alibaba, which went on to become an e-commerce giant in China that’s now worth more than $600 billion. More recently, however, he and his colleagues have sunk billions of dollars into cash-burning startups, and it was reported late last year that the fund pushed portfolio companies to expand aggressively in spite of staggering losses.
There’s still a “positive halo effect” for a company associated with SoftBank, OakNorth CFO Cristina Alba Ochoa says. Vision Fund executives and its portfolio are rich with valuable connections to executives and business opportunities around the world. “In the last year they made introductions to banks and financial institutions outside the UK that we wanted to meet,” Ochoa said at an industry event hosted by Innovate Finance. “They really introduced us at the right level.”
SoftBank was contacted for this story but didn’t provide comment.
Greensill and OakNorth, unlike a number of unicorns that have emerged in recent years, say they are profitable. And profitability is becoming fashionable again after some privately funded companies, including some backed by SoftBank, got a shock from public markets. WeWork, one of SoftBank’s biggest investments, called off its IPO last year after Wall Street took a look at its financials. Last week Casper, a direct-to-consumer mattress company that didn’t receive any Vision Fund money, listed on the New York Stock Exchange at a valuation that was around half of what venture capital investors had assigned it.
The gap in valuations highlights a weakness in private markets. They “are a very inefficient pricing mechanism,” Mark Tluszcz, the CEO at Mangrove Capital Partners, told Quartz in October. “One person defines the price. Not a lot of scrutiny.”
Greensill got $800 million in May from SoftBank, and that single deal, comprised of one investor, determined the working-capital lender’s $3.5 billion valuation, according to PitchBook data. By contrast, Citigroup’s stock traded more than 250 million times on NYSE in December. (Greensill also raised $655 million of convertible debt financing from SoftBank in October.)
Another question is whether enterprises backed by the Vision Fund have more money than they know what to do with. SoftBank’s companies can be fortified with hundreds of millions of dollars in capital, which is meant to help them surge ahead of their competitors. “If people can grow and they have room to grow, I think money can be very useful,” Masayoshi Son said in SoftBank’s earnings call with analysts this week. Historically, “whatever the revolution was, always money was necessary,” he said.
The strategy can backfire. Wag Labs, a dog walking startup, was reportedly seeking $75 million in funding and ended up with $300 million from Vision Fund. It sought to use the money to go international and add services like dog grooming, but the expansion failed (paywall) and it fell behind rivals, according to the Wall Street Journal.
Vision Fund has gotten attention for its misses, but executives say it has successes, too. Rajeev Misra, chief executive of SoftBank Investment Advisers, which oversees the Vision Fund, says it has about 50 winners in its portfolio, according to a Reuters report. The fund had invested in about 88 companies at the end of last year. Misra told a conference in Abu Dhabi that a dozen or more of its investments could seek IPOs during the next 18 months.
Greensill and OakNorth, meanwhile, say they can handle their tall stack of SoftBank cash. “Our goal is to continue to be profitable but at extremely high growth rates,” said Joe Hyland, chief marketing officer at working-capital lender Greensill. “Having the money and having all this dry powder in reserves for international expansion, for acquisitions, is really important,” he said at the Innovate Finance event in London this week. “If you’re focused on growth and focused on being a market leader, the more money you have the better.”
Despite the benefits—plenty of capital and lots of connections—has SoftBank’s investment become a distraction? The CFO at OakNorth, which lends to small- and medium-size companies, said it really depends on whether the money is being spent wisely and alters the company’s outlook. “Me, as a CFO, I haven’t changed my mindset,” she said.
With reporting assistance from Alison Griswold.
Gaming-focused investment firm Bitkraft closes in on at least $140 million for its second fund – TechCrunch
Image Credits: Mark J. Terrill / AP
Esports, video games and the innovations that enable them now occupy a central space in the cultural and commercial fabric of the tech world.
For the investment firm Bitkraft Esports Ventures, the surge in interest means a vast opportunity to invest in the businesses that continue to reshape entertainment and develop technologies which have implications far beyond consoles and controllers.
Increasingly, investors are willing to come along for the ride. The firm, which launched its first fund in 2017 with a $40 million target, is close to wrapping up fundraising on a roughly $140 million new investment vehicle, according to a person with knowledge of the firm’s plans.
Through a spokesperson, Bitkraft confirmed that over the course of 2019 it had invested $50 million into 25 investments across esports and digital entertainment, 21 of which were led by the firm.
The new, much larger, fund for Bitkraft is coming as the firm’s thesis begins to encompass technologies and services that extend far beyond gaming and esports — although they’re coming from a similar place.
Along with its new pool of capital, the firm has also picked up a new partner in Moritz Baier-Lentz, a former Vice President in the investment banking division of Goldman Sachs and the number one ranked esports player of Blizzard’s Diablo II PC game in 2003.
While at Goldman, Baier-Lentz worked on the $67 billion Dell acquisition of EMC and the $34 billion acquisition of RedHat by IBM.
The numbers in venture capital — and especially in gaming — aren’t quite at that scale, but there are increasingly big bets being made in and around the games industry as investors recognize its potential. There were roughly $2 billion worth of investments made into the esports industry in 2019, less than half of the whopping $4.5 billion which was invested the prior year, according to the Esports Observer.
As Ethan Kurzweil of Bessemer Venture Partners told TechCrunch last year:
“Gaming is now one of the largest forms of entertainment in the United States, with more than $100B+ spent yearly, surpassing other major mediums like television. Gaming is a new form of social network where you can spend time just hanging with friends/family even outside of the constructs of ‘winning the game.’”
Over $100 billion is nothing to sneer at in a growing category — especially as the definition of what qualifies as an esports investment expands to include ancillary industries and a broader thesis.
For Bitkraft, that means investments which are “born in Internet and gaming, but they have applications beyond that,” says Baier-Lentz. “What we really see on the broader level and what we think bout as a team is this emergence of synthetic reality. [That’s] where we see the future and the growth and the return for our investors.”
Baier-Lentz calls this synthetic reality an almost seamless merger of the physical and digital world. It encompasses technologies enabling virtual reality and augmented reality and the games and immersive or interactive stories that will be built around them.
“Moritz shares our culture, our passion, and our ambition—and comes with massive investment experience from one of the world’s finest investment firms,” said Jens Hilgers, the founding general partner of BITKRAFT Esports Ventures, in a statement. “Furthermore, he is a true core gamer with a strong competitive nature, making him the perfect fit in our diverse global BITKRAFT team. With his presence in New York, we also expand our geographical coverage in one of today’s most exciting and upcoming cities for gaming and esports.”
It helps that, while at Goldman, Baier-Lentz helped develop the firm’s global esports and gaming practice. Every other day he was fielding calls around how to invest in the esports phenomenon from private clients and big corporations, he said.
Interestingly for an esports-focused investment firm, the one area where Bitkraft won’t invest is in Esports teams. instead the focus is on everything that can enable gaming. “We take a broader approach and we make investments in things that thrive on the backbone of a healthy esports industry,” said Baier-Lentz.
In addition to a slew of investments made into various game development studios, the company has also backed Spatial, which creates interactive audio environments; Network Next, a developer of private optimized high speed networks for gaming; and Lofelt, a haptic technology developers.
“Games are the driver of technological innovation and games have prepared us for human machine interaction,” says Baier-Lentz. “We see games and gaming content as the driver of a broader wave of synthetic reality. That would span gaming, sports, and interactive media. [But] we don’t only see it as entertainment… There are economic and social benefits here that are opened up once we transcend between the physical and the digital. I almost see it as the evolution of the internet.”
Boston Beer founder Jim Koch defends hard seltzer investment after disappointing earnings report – CNBC
Boston Beer Company co-founder Jim Koch defended its heavy investment in hard seltzer Thursday as shares fell after weak guidance and a per-share earnings miss.
“Sometimes growth, it’s not cheap, particularly in something capital-intensive like beer,” Koch said on “Closing Bell.“
Hard seltzer, in particular, demands significant investment because “it’s the biggest thing that’s come into the beer business since light beer,” Koch said.
Shares of Boston Beer Company slid 7.6% to $396 Thursday following its after-the-bell earnings report a day earlier. It posted earnings of $1.12 per share for the fourth quarter while analysts had forecast earnings of $1.47 per share.
It also reported full-year EPS guidance of $10.70 to $11.70. Wall Street consensus had been $11.72.
Boston Beer CEO David Burwick said on the earnings call that margins will continue to suffer as it increases capacity to meet demand around hard seltzer.
“We expect this program to run for two to three years and begin showing margin improvement by the first half of 2021,” he said, according to a transcript from The Motley Fool.
The Samuel Adams brewer said it saw triple-digit growth around its hard seltzer brand, Truly, which helped deliver quarterly revenue of $301.3 million. It represents a 33.8% increase compared with the prior year.
Despite Thursday’s slide, Boston Beer’s stock remains up 47% in the past 12 months as the hard seltzer category exploded.
“Let’s not get distracted by what happens today or tomorrow,” Koch said in defense of the company’s strategy. “Let’s make sure we’re building for the future.”
And that’s a future in which Truly plays a critical role, said Koch, who launched the Boston Beer Company in his kitchen in 1984.
“We really don’t know how far is up” for hard seltzer, Koch said.
So far, Koch said, the fresh competition from Bud Light Seltzer has not hurt Truly’s popularity among consumers.
“We were actually very pleased with the entrance of Bud Light Seltzer,” he said. “Since Bud Light Seltzer’s been introduced, we’re the only hard seltzer that actually gained market share.”
Koch said hard seltzer’s growth has far exceeded what Boston Beer expected when it launched Truly about four years ago. It’s appealing to a wider range of consumers than they thought, Koch said.
“It kind of presses all the buttons. Great taste. Not much compromise. Health and wellness cues,” Koch said. “We think that the category can double again in 2020.”
Intel is a good investment and a bad trade, this investor says – Cantech Letter
US semiconductor name Intel (Intel Stock Quote, Chart, News NASDAQ:INTC) has had a great run over the past few months but is there more upside to come?
Likely in the long term, says Scotia Wealth’s Andrew Pyle, but for short term traders you might want to look elsewhere.
“The tech sector has been on fire, with the NASDAQ hitting another record high [on Tuesday]. I still like Intel right now,” says Pyle, portfolio manager for Scotia Wealth Management, who spoke to BNN Bloomberg on Wednesday.
After staying range-bound for a good year and a half, Intel broke out last fall to post a 25 per cent return for 2019, while so far in 2020 the stock is already up ten per cent and is now hanging around $66-$67 in recent weeks. (All figures in US dollars.)
“We seem to be having a bit of an issue in getting the stock up to the $70 range,” says Pyle. “We’re seeing a bit of consolidation right now which is a little bit different from what we’ve seen from some of the other high-fliers in the tech sector,” he said. “Having said that, I still think the fundamentals for Intel are good for a long-term play.”
“If we’re looking at five years out or more I think these levels are probably still attractive. For a short-term trade, I’d probably say we’re a little bit pricey right now,” Pyle said.
Intel’s share price got a nice boost near the end of January on the company’s fourth quarter earnings which surprised analysts with better-than-expected top and bottom line results.
Intel’s revenue climbed eight per cent year-over-year to $20.21 billion whereas analysts were calling for $19.23 billion, while earnings came in at $1.52 per share excluding certain items compared to the Street’s estimate at $1.25 per share.
The company saw just two per cent growth in its Client Computing segment but posted a whopping 19 per cent increase in its Data Center Group which manufactures chips for computer servers, with the rise being attributed to more business in cloud computing, especially by the big names in the field, the so-called hyperscale companies such as Amazon, Microsoft, Alibaba and Baidu.
Looking ahead, Intel management has called for 2020 revenue of $73.5 billion compared to 2019’s $72.0 billion.
“In 2019, we gained share in an expanded addressable market that demands more performance to process, move and store data,” said Bob Swan, Intel CEO, in the fourth quarter press release. “One year into our long-term financial plan, we have outperformed our revenue and EPS expectations. Looking ahead, we are investing to win the technology inflections of the future, play a bigger role in the success of our customers and increase shareholder returns.”
Intel is facing rising competition across many of its businesses from Advanced Micro Devices, among others, which has been gaining market share from Intel. AMD’s share price rose 148 per cent last year and has kept up the pace so far in 2020 by climbing 27 per cent so far.
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Gaming-focused investment firm Bitkraft closes in on at least $140 million for its second fund – TechCrunch
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