INTERVIEW: SoftBank Vision Fund stands shoulder to shoulder with Saudi Arabia — CEO Rajeev Misra

Rajeev Misra (Illustration by Luis Grañena)
Updated 24 July 2019

INTERVIEW: SoftBank Vision Fund stands shoulder to shoulder with Saudi Arabia — CEO Rajeev Misra

  • "We want to support the creation of tens of thousands of hi-tech jobs in Saudi Arabia over the next few years"

Rajeev Misra leaned back in his desk chair, exhaled a pull from a Juul vape, and delivered his verdict on the relationship between the firm of which he is chief executive officer, the SoftBank Vision Fund, and the Kingdom of Saudi Arabia. “Our interests align. We stand by them shoulder to shoulder,” he said.
That coincidence of interests is set to bring big economic benefits for Saudi Arabia as it seeks to transform its economy away from oil dependency.
“Our commitment is to support the creation of tens of thousands of jobs in Saudi Arabia, hi-tech jobs not blue collar, over the next few years,” Misra added.
His categoric assertion of the common vision between the world’s biggest ever investment fund and the Kingdom could not have been clearer and came at a crucial time in the fund’s development.
Pretty soon, the fund will have invested most of the $96 billion (SR360 billion) it raised two years ago and will look to launch a new fund to invest in cutting-edge disruptive technologies across the globe.
To do that, Misra will be looking once more to Saudi Arabia’s Public Investment Fund (PIF), and to the UAE’s Mubadala. Along with the Japanese SoftBank run by the Vision Fund’s chairman, Masayoshi Son, those three organizations put in the vast bulk of financial resources to the first fund.
If Son and Misra are to deliver on their mission to transform the global investment scene, they will need more Saudi and Emirati support. Whether or not it comes in the same huge quantities as in the first fund — $45 billion from the PIF and $15 billion from Mubadala — is still under negotiation as preparations for the second fund are being finalized. But there is no doubt from the Vision Fund side that the relationship with the Middle East is regarded as crucial to their ambitions.
In the course of a rapid-fire interview at Vision Fund’s headquarters in Mayfair, still the swanky capital of the private equity industry in London despite Brexit chaos outside, Misra explained the relationship with the Middle East, the progress made in the first two years or so of the fund’s operations, and answered critics of his track record in governance and valuation in the technology sector. Boring it was not.
He revealed a pledge to Crown Prince Mohammed bin Salman to support and enhance the Vision 2030 strategy to diversify the Saudi economy away from oil dependency. Delivering on that promise will depend on the application of Vision Fund’s “unique” business model which seeks to create an eco-system of investment and growth in new businesses.
“Vision Fund is a unique entity. It’s not a fund with a large number of investors — 90 percent of the capital came from three investors. It now has 81 investments around the world, in mid- to late-stage companies that are disrupting every industry on the planet in the way they conduct business using data sciences, technology and artificial intelligence (AI),” he said.
“We believe the wealth creation, the impact on the global economy over the next five to 10 years due to AI and data science will be even more profound than the impact over the last 20 years that the Internet has had,” Misra added.
Although Vision Fund has the reputation of being a specialist tech investor, it actually invests in any sector that it thinks can be disrupted and transformed by digital technology, from car parking, through to office-space management and health care, as well as others.
“AI and data science will impact every industry — how cars are sold, hotels, how insurance is sold, how homes are sold, health care, banking and trade finance,” said Misra.
The initial financial injection, usually between 20 and 50 percent, is only the beginning of Vision Fund’s involvement with its portfolio. “Our job is not just to invest. It’s to support our portfolio companies and help them grow.”
Vision Fund supplies this support to its portfolio companies in a number of ways. It provides them with the services of the in-house “operating group,” a cadre of trained and experienced executives separate from the investment process whose job is to assist with growth, recruitment and geographical expansion.
Misra soon expects to have more than 100 of these operatives as the number of investments grow. He also sees great benefit to be obtained from developing and enhancing synergies across the portfolio, with invested companies with common needs tapping into each other’s resources.

BIO

BORN • 1962, India

EDUCATION • Delhi Public School, the University of Pennsylvania, from where he gained a bachelor’s degree in mechanical engineering and then a master’s degree in computer applications

• Sloan School of Management at the Massachusetts Institute of Technology, USA, from where he received an MBA

CAREER • Senior financial executive at Merrill Lynch, Deutsche Bank, and UBS

• CEO at SoftBank Investment Advisers

“We help our portfolio of over 80 companies work with each other. That is a very powerful tool. The ecosystem of the fund has become an amazing growth generator for our portfolio companies and for the fund,” he said, reeling off a list of companies that have already or are in the process of exploring collaboration opportunities.
In financial terms, the fund is “doing very well,” Misra said. Valuations of assets are 20 percent ahead, and there have been five initial public offerings already — including the big IPO (initial public offering or stock market launch) of Uber earlier this year — which he said was “not bad for a young fund,” and promised more.
“We have dozens of companies planning to IPO by the beginning of 2021, assuming market conditions are favorable,” he said, citing “regulatory reasons” for his inability to publicly identify the “three or four more” IPOs that are under consideration for later this year.
Talk of regulators brought the conversation round to governance. Vision Fund has endured some criticism for perceived shortcomings in its governance procedures — it is said that SoftBank, under the command of the mesmerizing Son, has too much say in the choice of company investment; it is also suggested that too much control at the fund rests with a small coterie of investment executives, mostly with a common background to Misra’s as former Deutsche Bank financiers and traders.
It was the first time Misra’s casual bonhomie dropped, and he seemed just a little annoyed. “We’ve hired from a broad range of backgrounds including investment banks, asset managers and technology companies, many of whom we’ve worked with before. Investing is a trust business. If you let somebody invest your capital you’ve got to trust them; their judgment, their integrity, their track record. In any financial business you hire people you know and trust,” he said.
Referring to former Deutsche executives at the fund, he added: “They are the best of the best and I’ve worked for decades with many of our senior members.”
In other governance areas, Misra is at pains to point out that, although the fund has invested tens of billions in its first two years, it has not been simply throwing money at any prospect that comes along. “We’ve looked at 2,000 investment opportunities in the fund and have made 80 investments, so it’s a very rigorous investment process.”
The ultimate investment decisions were taken by himself and Son, he said, and the two had to agree for the investment to proceed. But there are formal investment and valuation committees too that have a big say in decisions, as well as an advisory board, on which the PIF and Mubadala have majority representation, designed to avoid conflict between the fund and SoftBank.
The fund is also regulated by the US Securities Exchange Commission and the UK’s Financial Conduct Authority, as well as regulators where it does business around the world.
The second fund, now being prepared, will not change its governance philosophy. As for the criticism that the Vision Fund’s huge financial resources have overinflated
value in the venture capital business, especially in the technology sector, his view is that there is nothing wrong with wealth creation.
If all goes to plan, Saudi Arabia stands to be a major beneficiary from that value creation. Not only will the PIF and other investors see healthy returns — what fund executives call “proof of concept” which could amount to a $15 billion payback by the end of this year — but also job creation, knowledge transfer and economic stimulus in the Kingdom.
Misra highlighted the portfolio companies that had already set up in the Kingdom — such as Indian hotels group Oyo and Californian construction group Katerra — and pledged these are just the beginning of a wave of foreign investment in Saudi Arabia.
“Our portfolio companies will have a big presence in Neom (the hi-tech metropolis being developed on the northern shores of the Red Sea), and over the next six months we hope to have a dozen companies with presence in the Kingdom,” Misra said.
The target is for 50 fund portfolio companies to be in Saudi Arabia by 2030, making Riyadh (where there are already half-a-dozen fund companies) the regional hub for digital technology. He had used the word “family” several times to describe the relationship with Saudi Arabia, and Misra obviously believes that family comes first.

 


Egypt’s creative solutions to the plastic menace

Updated 47 min 35 sec ago

Egypt’s creative solutions to the plastic menace

  • Egyptian social startups are taking alternative approaches to fostering awareness and reducing waste
  • While initiatives around the world are taking action to combat this problem, some Egyptian projects are doing it more creatively

CAIRO: Global plastics production reached 348 million tons in 2017, rising from 335 million tons in 2016, according to Plastics Europe. 

Critically, most plastic waste is not properly managed: Around 55 percent of it was landfilled or discarded in 2015. These numbers are extremely concerning because plastic products take anything from 450 to 1,000 years to decompose, and the effects on the environment, especially on marine and human life, are catastrophic.

While initiatives around the world are taking action to combat this problem, some Egyptian projects are doing it more creatively.

“We’re the first website in the Middle East and North Africa that trades waste,” said Alaa Afifi, founder and CEO of Bekia. “People can get rid of any waste at their disposal — plastic, paper and cooking oil — and exchange it for over 65 products on our website.”

Products for trading include rice, tea, pasta, cooking oil, subway tickets and school supplies.

Bekia was launched in Cairo in 2017. Initially, the business model did not prove successful.

“We used to rent a car and go to certain locations every 40 days to collect waste from people,” Afifi, 26, explained. “We then created a website and started encouraging people to use it.”

After the website was launched, people could wait at home for someone to collect the waste. “Instead of 40 days, we now could visit people within a week.”

To use Bekia’s services, people need to log onto the website and specify what they want to discard. They are assigned points based on the waste they are offering, and these points can be used in one of three ways: Donated to people in need, saved for later, or exchanged for products. As for the collected waste, it is given to specialized recycling companies for processing.

“We want to have 50,000 customers over the next two years who regularly use our service to get rid of their waste,” Afifi said.  

Trying to spread environmental awareness has not been easy. “We had a lot of trouble with initial investment at first, and we got through with an investment that was far from enough. The second problem we faced was spreading this culture among people — in the first couple of months, we received no orders,” Afifi said.

The team soldiered on and slowly built a client base, currently serving 7,000 customers. In terms of what lies ahead for Bekia, he said: “We’re expanding from 22 to 30 areas in Cairo this year. We’re launching an app very soon and a new website with better features.”

Go Clean, another Egyptian recycling startup dedicated to raising environmental awareness, works under the patronage of the Ministry of Environment. “We started in 2017 by recycling waste from factories, and then by February 2019 we started expanding,” said founder and CEO Mohammed Hamdy, 30.

The Cairo-based company collects recyclables from virtually all places, including households, schools, universities, restaurants, cafes, companies and embassies. The customers separate the items into categories and then fill out a registration form. Alternatively, they can make contact through WhatsApp or Facebook. A driver is then dispatched to collect the waste, carrying a scale to weigh it. 

“The client can be paid in cash for the weight of their recyclables, or they can make a donation to a special needs school in Cairo,” Hamdy explained. There is also the option of trading the waste for dishwashing soap, with more household products to be added in the future.

Trying to cover a country with 100 million people was never going to be easy, and Go Clean faced some logistical problems. It overcame them by hiring more drivers and getting more trucks. There was another challenge along the way: “We had to figure out a way to train the drivers, from showing them how to use GPS and deal with clients,” said Hamdy.

“We want to spread awareness about the environment everywhere. We go to schools, universities, companies and even factories to give sessions about the importance of recycling and how dangerous plastic is. We’re currently covering 20 locations across Cairo and all of Alexandria. We want to cover all of Egypt in the future,” he added.

With a new app on the way, Hamdy said things are looking positive for the social startup, and people are becoming invested in the initiative. “We started out with seven orders per day, and now we get over 100.”