A new report by PitchBook about SoftBank’s Latin America funds analyses the unique characteristics of the Japanese fund in the region in comparison to other initiatives worldwide. The first difference is structural.
As the report shows, SoftBank’s first Vision Fund has a structure that pairs equity-based investment by its limited partners (LPs) with a portion of preferred equity that gives LPs a 7% return, essentially as a debt instrument. In contrast, Vision Fund 2 is wholly funded by SoftBank and entities affiliated with SoftBank, such as Masayoshi Son’s own investments.
The SoftBank Latin America Funds are also wholly funded by SoftBank, but their size “can easily be increased depending on needs and investment opportunities.”
To take advantage of these opportunities, Latin America’s initiatives are also more independent than others led by SoftBank worldwide. “Though returns will go to SoftBank Group, the Latin America Funds share no personnel with the Vision Funds or with SoftBank corporate, quickening the funds’ ability to make timely investments as opportunities arise by limiting any bureaucracy that can come from large institutions,” points out PitchBook. In addition, SoftBank’s investments in Latin America are also more variable in terms of the stage of its investments: it can go up and down the venture lifecycle, while the Vision Funds have primarily invested in late-stage unicorns.
In September 2021, SoftBank announced that it was forming an initiative focused only on early-stage startups, a new $300 million VC fund that is focused on seed to Series A/B investments rounds. In October, LABS talked to one of the managing partners in charge of the new fund: Rodrigo Baer, one of the pioneers of the venture-capital industry in Brazil, having led investments in and advising the founders of more than 20 startups since 2010.
Since the beginning of 2021, he and Marco Camhaji have been working, on their own, to structure an early-stage operation focused on a few sectors. Halfway through, SoftBank asked if it could participate in the initiative. That’s how, in the same week it announced that it would allocate another US$ 3 billion – in addition to the US$ 5 billion reported in 2019 – to startups in Latin America as a whole, the SoftBank destined for the region also ended up announcing a fund specific to early stage.
As PitchBook points out, SoftBank made several investments in Latin America out of its first Vision Fund. Rappi and Loggi are two of the nine Latin America investments the fund made, splitting efforts between the Vision Fund and the first Latin America Fund. “While this split makes sense, it further highlights the independence of SoftBank’s Latin America team from the Vision Funds and the rest of SoftBank Group,” says PitchBook.
Until today, 60% of the Latin America Funds’ investments have been made at the late stage, but the range of investments differs significantly from traditional venture funds (see PitchBook’s graph below). “SoftBank’s Latin America Funds’ ability to widely diversify their investment types also allows them the flexibility to invest in an inefficient market, one that may not contain the number of opportunities needed for a firm to invest solely at a single stage or within a specific investment type,” evaluates PitchBook.