- SoftBank Vision Fund’s recent investments have attracted a great deal of scrutiny in the aftermath of WeWork’s failed IPO, especially after SoftBank Group reported a $6.5 billion loss in the third quarter.
- SoftBank had raised $1.5 billion for SoftBank Capital Partners in 1999, which likely made it the largest late-stage venture fund at the time, according to SoftBank documents.
- SoftBank Capital Partners invested in companies across the web landscape in the late 1990s and 2000, but when the dot-com market subsequently crashed, the fund and other SoftBank investments came close to being wiped out.
- “Serious doubts” about SoftBank’s “increasingly chaotic” internet empire were beginning to swirl, The Economist wrote in March 2000.
- Here’s a look at some of the companies SoftBank Capital Partners plowed its money into and how they ended up.
- Visit Business Insider’s homepage for more stories.
SoftBank has made news in recent months as a series of investments, from WeWork to Uber to Wag.com, have soured, raising questions about its strategy to plow massive amounts of money into startups and anoint them the winners of their respective industries.
The approach is the hallmark of the company’s Vision Fund, a $100 billion investment vehicle raised in 2017 from backers including Saudi Arabia; Abu Dhabi, United Arab Emirates; and SoftBank corporate.
But what many people may forget — or not even know — is that SoftBank pursued a similar venture strategy 20 years ago with disastrous results.
In what could have been called the Vision Fund of its day, SoftBank raised $1.2 billion for SoftBank Capital Partners in July 1999 to make late-stage investments in promising tech companies.
Controlled by SoftBank, the fund raised money from limited partners, including the state of Michigan and the French media company Vivendi. SoftBank pledged $720 million of the total, and founder Masayoshi Son was one of just a few partners.
Son would reserve a hotel suite in California — preferring the Fairmont San Jose or the Ritz-Carlton San Francisco, and sometimes the Mandarin Oriental — and host a series of meetings with startup founders that the fund and other SoftBank units were thinking of backing, according to a former SoftBank employee.
The investment vehicle may have been the largest late-stage fund in history, eventually swelling to $1.5 billion, according to a 53-page factbook SoftBank published in 2001.
Benchmark Capital, which invested in WeWork alongside the Vision Fund, raised a $1 billion fund around the same time, according to The Wall Street Journal.
As SoftBank Capital Partners ran around Silicon Valley writing checks of $50 million to $150 million, it received many of the same criticisms the Vision Fund has received recently. The fund took stakes and was seemingly unconcerned about valuation or the disruption it brought to the Silicon Valley order, according to news reports at the time.
The plan then, as it has been with the Vision Fund, was to raise similar-size funds every year or two. SoftBank Technology Ventures VI launched the following year with a similar amount of money, but that was one of a series of funds focused on early-stage investments. SoftBank is already raising funds for a second Vision Fund, though the troubles of the first may make that more difficult.
SoftBank Capital Partners returned pennies on the dollar to its limited partners, tracking of the investments shows. SoftBank’s 2001 factbook said some of the “broad range of late-stage start-ups” in which it had invested “are not performing well because of the current market conditions.”
It was a tough time across the industry. The Nasdaq, where many of the early tech firms listed shares, fell nearly 80% from March 2000 to October 2002. Venture capitalists industrywide lost a net 17.6% in 2001 and 33.7% in 2002, according to Cambridge Associates.
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Here is a list of 14 of the investments made by SoftBank Capital Partners, seven of which ultimately collapsed. To be sure, some names, such as 1-800-Flowers, emerged on the other side of the crash.
A SoftBank spokesman declined to comment.
Investor darling Webvan burned through $800 million in cash and went bankrupt.
The online grocer Webvan was one of the most generously financed startups of the dot-com era, raising a whopping $441 million from investors as it promised to shake up a $450 billion grocery market. SoftBank Capital Partners was one of its many investors.
But its fall was one of the most spectacular failures of the dot-com era.
The company planned to sell $345 million worth its stock in an initial public offering right at the time when dot-com stocks were beginning to slide. After an initial delay, the company made its debut on the stock market in November 1999, The New York Times reported. At the time, the company expected to post more than $65 million in losses for that year.
In fact, Webvan had burned through more than $830 million in cash thanks to high overhead costs. The company’s sales revenue was tiny compared with the amount spent on building high-tech warehouses, hiring an army of employees, and assembling a fleet of trucks.
By July 2001, the company had shut down the website, fired 2,000 employees, and filed for bankruptcy, The Wall Street Journal reported.
Kozmo.com’s last-ditch effort to merge with another company fell through, forcing the company to lay off 1,100 employees and shut down.
Run by a charismatic 26-year-old entrepreneur in the East Village neighborhood of Manhattan, the online delivery company Kozmo.com was supposed to be New York’s first big dot-com company.
The company had expanded to nine cities and quickly swelled to 3,300 employees, attracting up to $280 million in investments from heavyweights like Amazon and SoftBank Capital Partners, The New York Times reported.
And the company had big plans: It registered for an IPO in March 2000 and planned to expand to 30 cities across the country.
Then the dot-com bubble burst and Nasdaq tech stocks began to plummet, drying up the public market. Kozmo scrambled to boost its profit margins as investors began to back away from the company.
When a last-ditch effort to merge with a LA-based company fell through in April 2001, the company pulled the plug on its efforts. It shuttered its operations and laid off its remaining 1,100 employees, Bloomberg reported.
Buzzy trading platform OptiMark Technologies went bust.
The buzzy stock-trading system OptiMark Technologies had drummed up investor expectations because of a black-box algorithm that allowed traders to specify how much they were willing to pay for a certain quantity of stock and then anonymously find a match.
It was supposed to revolutionize stock trading and render the New York Stock Exchange obsolete. The company had partnered with Nasdaq and the Pacific Exchange and had strategic partners like Dow Jones, the Los Angeles Times reported.
SoftBank Capital Partners had invested $100 million in OptiMark.
But traders found the system tedious to use and less effective than stock markets. Meanwhile, high overhead costs were causing the company to burn through $6 million in cash each month, making its operations unsustainable.
The company eventually went bust in September 2000, suspending trading operations and eliminating 110 jobs, The Wall Street Journal reported.
‘Pay to surf’ platform AllAdvantage.com sold internet users the dream — and then ran out of cash.
The “Get paid to surf” company AllAdvantage.com miscalculated how popular its business model would be with internet users, a mistake that would prove fatal.
The website paid users an hourly fee to attract other users to its webpage, where an advertising toolbar, dubbed the Viewbar, would track and gather browsing habits as they surfed.
SoftBank Capital Partners invested $70 million in AllAdvantage.com, betting that advertisers would go crazy for the user data the company would be able to gather.
AllAdvantage.com quickly attracted close to 6 million users, forcing its costs up to a higher-than-expected level and prompting analysts to question whether it was able to deliver advertisers enough data to break even.
It was not, Fortune reported in 2000. In fact, the company burned through most of its $135 million investment, losing $66 million in just the first quarter.
The company saw its planned IPO fall through in 2000. It closed down by February 2001.
Odimo struggled through the crash but couldn’t survive for long. It sold its domain name Diamond.com for $7.5 million and later went bust.
SoftBank Capital Partners invested $31 million in the online luxury retailer Odimo Inc. in February 2000, a company press release said.
Odimo had three different lines of luxury goods sold through different websites: www.ashford.com, www.worldofwatches.com, and the highly sought-after domain name www.diamond.com, which Odimo sold for $7.5 million in 2006.
The company survived for longer than many of its dot-com peers. But its significant losses eventually caught up with it, and a 2005 IPO filing warned that it might not be able to generate sufficient cash.
By April 2007, Odimo had sold its three websites and laid off all its workers.
“Other than Amerisa Kornblum, our President and Chief Executive Officer, who, commencing in 2008, serves the Company for no compensation, we have no full time employees,” a 2007 annual report to the Securities and Exchange Commission said.
Other companies made unlikely comebacks, like the embattled Buy.com.
Loss-making Buy.com would have been the classic example of a dot-com-company crash if not for the actions of a tenacious founder.
The company was one of the internet’s largest merchants, selling everything from computers to books, videos, and games.
But Buy.com made its debut on the stock market in early 2000, just as other dot-com stocks were tanking. And its negative gross margins would quickly prove troublesome for the company, beginning with a rocky first week as a publicly traded company, The Wall Street Journal reported.
The company was running losses of up to $133 million that year as it tried to ramp up its users. It also expanded into the UK, which started a price war with existing retailers, The Wall Street Journal reported.
Founder Scott Blum, who had been ousted as CEO just months before the company went public thanks to a spotty track record with the SEC, watched his shares plummet in value. Then he made his move in 2001. Blum bought the company back and took it private, Forbes reported.
The company was ultimately acquired by the Japanese e-commerce giant Rakuten for $50 million, TechCrunch reported in 2010.
Rivals.com also died and came back to life in the blink of an eye.
The Seattle-based online sports network Rivals.com died and was brought back to life, all in the blink of an eye.
Its prospects seemed bright in 2000. The company had acquired the regional sports network Alliance Sports and received a $35 million investment from SoftBank Capital Partners, CNET reported. At its peak, the company operated a network of 700 websites and seemed set to file for an IPO worth $100 million.
But the dot-com crash hit the company hard, and it ceased operations in 2001. That’s when a former executive from Alliance Sports stepped in and bought back the company’s assets, the Seattle Post-Intelligencer reported.
The company relaunched the website under different leadership, eventually became profitable, and was acquired by Yahoo in 2010 for an estimated $100 million, CNBC reported.
Other companies survived by reinventing themselves. SmartAge.com changed its identity, replacing its name, management, and business model.
SmartAge.com was a portal that helped small businesses create and promote their sites, and it attracted $39 million in investment from SoftBank Capital Partners.
The company had planned to go public with a $90 million IPO in 2000, according to a MarketWatch report. But market conditions would prove tough for the company, and it shelved its IPO plans and went through a major round of layoffs, Fortune reported.
The company changed its name to B2SB Technologies in 2001, switched out its management team, and transformed its business model, SF Gate reported. Part of that transformation involved abandoning its destination site and pushing a new product through partners like ZDNet, the Fortune report said.
Still others managed to push through the hard times — 1-800-Flowers.com worked its way up to become a leading gift retailer.
Compared with its dot-com peers, 1-800 Flowers was older and had more humble origins. The online flower-delivery company was one of the early pioneers of on-call commerce. But owner Jim McCann could not afford a night-shift employee, so he forwarded all night orders to his home phone, he said in a post published by The New York Times.
The dot-com crash wasn’t the first financial crisis that the company faced. In 1986, McCann said he bought a Texas-based floral company without realizing it had a debt of $7 million. The company came close to bankruptcy, but it survived through advertisements on CNN and AT&T TV commercials.
The company made its debut on the public market just as dot-com stocks were beginning to flop in 1999. And a rocky first day on the market caused several employees to express dismay, The Wall Street Journal reported.
The company managed to survive its IPO and continued to build its business. It eventually tied up with big brand businesses like Martha Stewart Living and acquired a number of other gift retail companies since then.
Amazon’s favorite online-recruiting business stayed open, eventually getting acquired.
Webhire, based in Massachusetts, was an online-recruiting business that had piqued the interest of investors such as Amazon and SoftBank.
SoftBank Capital Partners spent $31 million to acquire a 40% stake in the company back in 1999, a Dow Jones wire said. Then it syndicated some of that investment to Yahoo, renamed part of the site to Yahoo Resume, and transformed it into a talent data bank for a host of SoftBank-linked companies, The Wall Street Journal reported.
SoftBank continued to buy Webhire shares from Amazon well into 2002.
Webhire was eventually acquired by the recruiting-software platform Kenexa in 2006. The transaction cost Kenexa $34 million, a press release said. Kenexa was later acquired by IBM.
The savvy founders behind Legal Research Network also kept their company thriving.
The corporate-compliance platform LRN (Legal Research Network) promised to revolutionize legal research, prompting SoftBank Capital Partners to invest $30 million in the company in early 2000, the Los Angeles Times reported.
The company wanted scale the extent to which it could offer legal services through the internet, building learning products and software to educate employees on antitrust, discrimination, securities, trade secrets, and other legal areas, The Washington Post reported.
The company was one of SoftBank’s more successful bets. The company recently celebrated its 25th anniversary, and it works with over 400 organizations in countries around the world, LRN’s website said.
National Leisure Group worked its way up the market, eventually getting acquired in 2007.
The National Leisure Group wasn’t a traditional dot-com company. It sold cruise and vacation packages through partner websites like Orbitz, Expedia, Yahoo, and Priceline. It also turned out to be one of SoftBank’s more durable bets.
SoftBank Capital Partners and General Catalyst, a Boston-based private-equity firm, took control of the National Leisure Group in the middle of the dot-com crash in May 2000, a company press release said.
The company would continue to do well, earning close to $1 billion in sales, according to the Boston Business Journal.
It was eventually acquired by World Travel Holdings in 2007, a press release said.
GSI Commerce sold to eBay at a 51% premium above market price. Its founder later managed to secure $1 billion in funding from SoftBank’s newest act, Vision Fund.
SoftBank Capital Partners made a major bet on Michael Rubin’s Global Sports company, pouring in $80 million in 1999, according to MarketWatch. As part of the deal, the company divested its noncyber assets, leaving it a prime target for the upcoming dot-com bust.
And the newly minted GSI Commerce’s initial performance during the downturn wasn’t pretty: The company lost a total of $155 million, a feature from Forbes said. But the company pushed sales from $5.5 million to $355 million, allowing it to break even.
GSI Commerce proceeded to do extremely well and eventually sold to eBay for $2.4 billion. At $29.25 per share, the company sold 51% above market price, TechCrunch reported.
SoftBank Capital Partners had already sold its stake in the company in August 2009, according to a company proxy statement, and did not fully benefit from the windfall.
Meanwhile, Rubin formed a new company, absorbing GSI lines of business like Fanatics and ShopRunner. SoftBank would later invest $1 billion in Fanatics via a newer venture arm, the $100 billion Vision Fund, which Rubin credited to GSI Commerce’s earlier success.
And CyberArk Software kept its head down, waiting until 2014 to go public.
SoftBank Capital Partners helped the security company CyberArk Software raise about $6 million in funding in July 2000, CNET reported.
The company continues to thrive today. Its technology still helps companies protect their data, infrastructure, and assets across the enterprise, in the cloud, and throughout the DevOps pipeline, a description on the company website said.
The company made its debut on the stock market in 2014, a press release said.
And as companies have turned to storing their data online, CyberArk’s offerings have grown only more valuable over time. The company website says it works with more than 5,000 global businesses, more than 50% of which are Fortune 500 companies.