A serial killer in Greek mythology has reappeared in the 21st century. Damastes used to hang out in the road between Athens and Eleusis. His victims were lured to spend a night in his house and then chained to an iron bed. If the victims were shorter than the bed, they were stretched by a hammer. The tall ones had their limbs cut to fit the bed.
The same cut-to-size approach to investing has driven Softbank’s Vision Fund. The fund invests in emerging technologies like AI, robotics and e-commerce, and is founded by Masayoshi Son, a driven investor.
It manages US$150 billion ($201 billion). Son, a man of vaulting ambition, plans to raise US$100 billion for a new fund every few years, and it wants to invest about US$50 billion a year in start-ups.
SoftBank’s investments include Uber Technologies and Slack Technologies. These are companies that are disrupting industries through technology. Uber is booking rides for people with smartphones. Slack is a chat platform for the workplace.
Like how Damastes extended the limbs of his victims, Son has stretched the definition of technology. It provides a technology angle to businesses that are not. This often leads to spectacular failures.
For instance, Greensill Capital, one of the Vision Fund’s investee companies, filed for bankruptcy this week. Greensill was founded by 44-year-old Australian Lex Greensill, whose ambitions matched that of Son.
Greensill Capital called itself a disruptor in supply chain finance. Lex Greensill’s parents were potato farmers in Queensland, Australia. When he was a boy, his parents struggled to get paid for their produce. They had to wait months to collect after delivery.
Their difficulties left a mark on the young man. Greensill studied business in the UK. He got a job in Citibank London, where he rose to head supply chain finance. He then got a job advising then-British Prime Minister David Cameron on FinTech.
Greensill founded an eponymous firm in 2011 that would provide supply chain finance to companies shunned by traditional banks. Greensill helps companies receive working capital funding. For example, a wheat producer in Australia that wants money for its uncollected receivables from China would be a typical customer.
Lex Greensill’s genius was to project an old economy business as a technology disruptor. Greensill Capital used a technology platform to manage working capital. This was provided by a US firm called Taulia. This technology platform helps suppliers like the Australian wheat producer receive early payment. The platform connects Australian firm’s invoicing system with the buyer’s. It helps both parties keep track of the transaction.
Greensill is one of many firms that use this platform. There is nothing exclusive about Greensill’s use; many others provide exactly the same solution. It is just that Greensill and the Vision Fund has attached the magic words “disruptive technology” to the firm.
Greensill’s rise indicates the frothiness of the tech bubble. Many non-technology businesses have jumped on the bandwagon. Greensill raised US$1.5 billion of funding from Softbank’s Vision Fund by projecting itself as a tech innovator.
The real estate company WeWork was also backed by the Vision Fund as a tech innovator. WeWork was valued at US$47 billion by some. The word “technology” appeared more than 110 times in the IPO prospectus. It vowed to be “moving toward a Google Analytics for space”. The prospectus said it was “a global platform (that) integrates space, services and technology”.
Eventually, the company had to scrap its high-profile IPO in 2019. Investors could not stomach the largesse that was provided to WeWork’s founder Adam Neumann. Neumann was paid US$5.9 million worth of stock for the use of the trademark “We”.
The clincher in the collapse was that investors realised that WeWork was not a technology company. It was a provider of co-working spaces that had a valuation that was 10 times that of its listed rival Regus. The premium was purely on the back of the projection of technology.
Damastes was killed in the end by his own methods. He was captured and nailed to his own bed. Let us hope that the Vision Fund heeds the lessons of stretching the sleeper to fit the bed.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer. He does not hold any position in the stocks mentioned in these columns.
