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SoftBank’s Vision Fund II Targets Microsoft Money To Help Build Its Second Capital Cannon

Morning Markets: SoftBank’s second Vision Fund is coming into sharper focus as we learn that Goldman Sachs, Microsoft, and SoftBank are possible investors.

After indicating that the Vision Fund could be only the first of similar capital vehicles, it seems that SoftBank’s dream of having more than one enormous investment fund is inching closer to reality. News had swirled that SoftBank was struggling to raise the money it needed to fill the coffers of a new Vision Fund, a tall challenge after the first installment raised around $100 billion over time.

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According to the Wall Street Journal, the investor list for what we’ve decided to call the Vision Fund II, include SoftBank itself (soon unshackled from Sprint’s debt load), Goldman Sachs (an active investor in its own right), and Microsoft, which is a slightly odd cookie in the mix.

Microsoft has a somewhat atypical history as an investor, or, as an LP if it invests in Vision Fund II. Recall that Microsoft’s early venture efforts included the Bing Fund, which later molted into a platform-play of sorts called Microsoft Ventures. Now Microsoft’s M12 venture group cuts checks, though it did take a while to get to the decision of taking equity stakes in smaller companies.

(Back in my Microsoft-covering days, Microsoft’s lack of venture activity was explained by Redmond staffers as an acknowledgment of the fact that VC deals wouldn’t impact its balance sheet in a material way.)

To see Microsoft written down as a potential LP for the new Vision Fund is notable. After all, Microsoft balked at buying Slack back in the day. Since then it’s been at war with the smaller company through its competing Teams product. In the meantime, the first Vision Fund invested in Slack, which is now a public company.

It feels gently odd to see Microsoft commit some billions of dollars to a vehicle so that it can get micro-stakes in certain businesses that it wouldn’t buy outright; I understand Microsoft investing on its own to purchase minority stakes as it can learn from those companies, and could secure board seats. An LP relationship is different, more remote.

There’s one final wrinkle to the possible deal that we should raise that could help us understand Microsoft’s interest. Here’s the Journal:

SoftBank executives told Microsoft they would encourage the fund’s roughly 75 companies to shift from Inc.’s cloud platform to Microsoft’s, some of the people said. A Microsoft spokesman declined to comment.

Perhaps SoftBank could convince a minority of its investees to spend a minority of their marginal cloud spend on Azure, but I can’t imagine any company of scale switching clouds so that one of their investors could possibly raise funds from a particular LP. (Brex recently published a look at startup cloud usage, showing that Microsoft’s Azure isn’t doing well among the user cohort, as a data point.)

So we’ll see. But Microsoft has its own venture arm, global operations, and checkbook for buys. What it gets out of being a Vision Fund II LP isn’t as clear as, say, what Saudi Arabia gets out of the deal; for the latter, petroleum incomes can be recycled through the Vision Fund, allowing the monarchy to reap returns on the liquid capital that supports its regime.

Regardless, the Vision Fund II is being actively compiled. And if it does find enough capital to launch, we won’t have to wonder anymore what the world will be like without the Vision Fund’s epic checks.

PS. What I can’t get away from when considering a second Vision Fund is that it will push more capital into private companies, allowing them to hold off public offerings even longer. This, as even WeWork is racing to get public before the good times on the public markets end. Either SoftBank is right, to some degree, or WeWork is. That SoftBank owns bunches of WeWork makes for a slightly ironic moment. Surely it would be better to get some more unicorns public instead of doubling-down on crowning more startups with billion-dollar checks?

Illustration: Li-Anne Dias.

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