The Money Trap

few tales from the heights of global tech finance rival the audacious transformation of softbank from regional telecom provider to silicon valley kingmaker. at its center stands an unlikely duo: masayoshi son, the enigmatic founder who makes billion-dollar decisions over $5,000 bottles of wine, and alok sama, the mathematician-turned-dealmaker who helped architect some of tech's most consequential transactions. their story encompasses the acquisition of arm holdings, the creation of the $100 billion vision fund, and the high-stakes gamble on the future of artificial intelligence and the internet of things.

behind the headlines of record-breaking deals and massive valuations lies a more complex narrative about ambition, innovation, and the increasingly blurry line between visionary investing and reckless risk-taking. interested? let’s find out more.

as a mathematics prodigy in delhi during his early twenties, alok sama found himself captivated by the elegant complexity of fermat's last theorem, which had confounded mathematicians since 1637. when andrew wiles finally solved it, in 1994, sama had already made his decisive pivot to finance – a choice that reflected his pragmatic recognition that while mathematical theorems could wait, the rapidly evolving world of global finance would not.

at morgan stanley, sama distinguished himself as a quantitative specialist – a "quant" in wall street parlance – where he applied his mathematical acumen to increasingly complex financial instruments. 

his rapid ascent to managing director at morgan stanley by age 33 brought the expected trappings of success – a million-pound house in london's prime districts and compensation that placed him firmly in the upper echelons of global finance. yet the tech bubble of the late 1990s revealed a new paradigm of wealth creation that made even successful investment bankers appear conservative in their ambitions. sama watched with envy as the emerging class of technology entrepreneurs – dubbed "tech bros" by the financial press – amassed fortunes that dwarfed traditional wall street compensation.

among these tech visionaries, masayoshi son emerged as a figure of particular fascination. the softbank founder had transformed an early $20 million investment in yahoo into billions, eventually controlling 8 percent of all online properties – a bet that demonstrated the kind of prescient vision that traditional financial models struggled to capture. 

the 2011 publication of marc andreessen's seminal essay "why software is eating the world" served as a catalyst for sama's next career move. the piece articulated what sama had observed from his vantage point in investment banking: software companies were not merely disrupting traditional industries – they were fundamentally restructuring the global economy. this insight drove his decision to join softbank as an in-house dealmaker during a pivotal moment in tech finance. 

at softbank, sama worked alongside son and, in doing so, gained  insight into the unique corporate culture that defined softbank. son, the son of korean immigrants who had arrived in japan with nothing, had built softbank into a $200 billion empire while maintaining his signature motto: "happiness for everyone." son fascinated sama – here was a man who wore cashmere blazers while others sweated in t-shirts in softbank's notoriously overheated offices, who discussed investment philosophy over $5,000 bottles of la tâche wine, and maintained an almost messianic belief in technology's potential to transform society.

son's investment philosophy, which sama helped refine and execute, centered on the transformative potential of internet platforms. son viewed platforms like uber, which would later become a significant softbank investment, as capable of exponential growth with minimal capital investment. their value was driven through the rapid expansion of user networks.

son's innovative thinking extended beyond traditional tech investments, drawing inspiration from unexpected sources. he often recounted how he had once advised his parents, who ran a struggling coffee shop, to offer free coffee – a counter-intuitive strategy that drove customers to purchase high-margin pastries. this loss-leader concept evolved into softbank's "blitzscaling" strategy, where portfolio companies offered heavily subsidized services to rapidly capture market share. the ultimate goal remained consistent: achieve 80 percent market dominance to control pricing dynamics.

yet son's optimism carried the weight of hard-won experience. the 2000 tech bubble had devastated softbank's $200 billion valuation and erased 95 percent of son's personal wealth. while son described the crash as "freeing," he frequently expressed regret about missing amazon's ipo due to insufficient capital reserves – a lesson that would later influence softbank's strategy of maintaining substantial cash positions for opportunistic investments.

sama often found himself playing the role of pragmatic counterweight to son's visionary enthusiasm, particularly regarding son's deep attachment to investments like alibaba, whose long-term profitability remained uncertain. nevertheless, their partnership flourished as sama perfected what became known as softbank's "time machine strategy" – identifying successful us business models for replication in markets with developmental time lags. this approach led to investments in companies like flipkart, replicating amazon's model in india, and didi, following uber's playbook in china.

in 2013 softbank was foundering. the firm confronted mounting pressure after acquiring the heavily indebted us wireless carrier sprint. softbank’s ambitious plan to merge sprint with t-mobile encountered fierce resistance from antitrust regulators, leaving softbank with downgraded credit ratings and an urgent need for capital. sama and his team responded by orchestrating two complex transactions aimed at raising $20 billion.

the first involved the sale of supercell, a finnish gaming company behind the massively successful clash of clans. softbank had made an early bet on mobile gaming, correctly identifying it as a growth sector that expanded from $78 billion to $137 billion in the early 2010s. during negotiations in helsinki with potential buyer tencent, sama deployed a classic investment banking tactic – staging a highly visible breakfast meeting with an alibaba representative to create competitive tension. the strategy proved effective, pushing the final sale price to $10.2 billion.

the second transaction demanded even greater financial ingenuity: a partial liquidation of softbank's stake in alibaba, then valued at $120 billion. the challenge lay in executing a significant sale – even 8 percent of alibaba's equity – without sending negative signals to wall street. executing the deal involved navigating two distinct challenges. first, softbank's ownership structure featured a complex web of holdings through a cayman islands entity. this offshore arrangement, while common in international finance, created multiple layers of legal complexity around tax implications and cross-border regulations. second, any transaction had to account for china's unpredictable regulatory landscape. the chinese government had repeatedly demonstrated its willingness to suddenly impose new restrictions on foreign investment or intervene in corporate operations.

sama crafted an elegant solution: a two-part transaction comprising a $3.4 billion equity sale to alibaba's partnership and singapore's government, coupled with a $6.6 billion convertible bond issuance through morgan stanley and deutsche bank. the exchangeable bonds offered investors an appealing proposition: the option to convert into alibaba shares – valued at 17.5 times their issue price – or receive equivalent cash after three years. this structure provided softbank with immediate liquidity while maintaining long-term upside exposure to alibaba's growth.

the alibaba deal, negotiated in beijing, also enabled an $11 billion investment in chinese rideshare platform didi, which had merged with competitor kuaidi dache. this led to a groundbreaking merger with uber china – a consolidation that would have faced insurmountable antitrust hurdles in the us. however, the deal also highlighted the risks inherent in chinese markets; in 2022, the chinese government's decision to shut down didi for "illegally collecting user data" served as a stark reminder of the volatility baked into state-controlled capitalism.

in 2016, masayoshi son identified an acquisition target that would fundamentally reshape softbank's future: arm holdings plc, a company relatively unknown to the general public but central to modern computing. unlike manufacturers like intel and tsmc, arm's power lay in designing and patenting efficient microprocessors that other companies used in their chips. by 2016, arm's designs were present in over 95 percent of smartphones, and technologists predicted their dominance would extend into the emerging internet of things (iot) sector – precisely where son saw the next investment frontier.

arm occupied a unique market position. its neutrality made it invaluable to tech giants like apple and google, who all relied on its products. this same neutrality protected it from acquisition by these companies, as any such move would disrupt the delicate ecosystem. as a dependable, profitable blue-chip investment, its shares were typically too expensive for takeover attempts. yet son, eyeing a $30-35 billion acquisition, believed the market underestimated arm's growth potential in iot. with $20 billion in reserves, he saw an opportunity to reorganize softbank around ai and iot, much as he had done with mobile phone technology decades earlier.

the deal's completion in just two months came at a cost – softbank's share price immediately dropped by $10 billion. however, son was focused on a grander vision, which materialized as the $100 billion softbank vision fund. the fund's structure was revolutionary, employing "preferred equity" in a mezzanine financing arrangement. for each investment, half the cost came from capital, with investors providing the remainder. these investors earned 7 percent interest but only received returns when investments were sold, sometimes needing to inject additional cash during investment-only periods. despite these risks, the fund attracted major backers, including saudi prince mohammed bin salman, who committed $45 billion after just a 45-minute meeting – what son later called a "billion per minute" discussion.

yet as the fund grew, silicon valley insiders began voicing concerns about another tech bubble, with prominent venture capitalists warning that too much capital was chasing increasingly scarce "unicorn" opportunities.

the wework saga illustrated the mounting pressures facing softbank's investment strategy. when founder adam neumann pitched his vision in 2017, including the ambitious welive concept – an expansion from shared workspaces into communal living spaces – sama expressed skepticism. despite wework's $19 billion valuation, he questioned why a real estate company commanded technology-company multiples. nevertheless, after a mere 12-minute tour, son committed $4.4 billion – $1.3 billion for asian ventures and the remainder in equity – marking the largest startup investment of its time.

this apparently impulsive decision reflected broader challenges within the vision fund. with $100 billion to deploy, son's prescient vision of ai and iot opportunities had run ahead of market reality. the pressure to deliver timely returns to investors led to questionable investments: $300 million in wag (marketed as "uber for dogs"), stakes in the robotics-focused pizza company zume, and other ventures far removed from the fund's core thesis. while some investments proved sound – like the stake in bytedance, tiktok's parent company – the positions were too small to drive meaningful fund performance.

the election of donald trump created unexpected opportunities in telecommunications regulation. sama and son leveraged the shifting political landscape to engineer a merger between sprint and t-mobile, returning to son's expertise in telecommunications consolidation. the deal required complex negotiations with regulators and demonstrated sama's ability to execute large-scale transactions in highly regulated industries.

the deal structure involved intricate financial engineering: sprint would merge with t-mobile in an all-stock transaction valuing sprint at $26.5 billion. softbank, as sprint's majority owner, would see its stake diluted but maintain significant influence in the combined entity. the merger promised substantial synergies through network consolidation and operational efficiencies, while creating a stronger competitor to industry leaders at&t and verizon.

however, even this strategic victory couldn't forestall the looming crisis that would soon engulf softbank's ambitious investment strategy. the vision fund's scattered investments and aggressive valuations would soon face intense scrutiny, testing both son's vision and sama's dealmaking acumen in ways they hadn't anticipated.

as the vision fund's influence grew, alok sama found himself increasingly at odds with masayoshi son's aggressive investment strategy. sama voiced mounting concerns about the pace of dealmaking, the escalating risk exposure, and the growing use of leverage. most troubling to him was the fund's apparent drift from its core mission of investing in artificial intelligence, but son remained unwavering in his confidence, dismissing these warnings. sama eventually stepped down.

the aftermath proved sama's concerns prescient. wework's spectacular implosion became the defining crisis of the vision fund era. adam neumann's shared workspace company, which son had valued at $47 billion, saw its valuation plummet amid scrutiny of its business model and corporate governance. the failed ipo attempt in 2019 revealed massive losses, questionable related-party transactions, and neumann's eccentric management style. softbank ultimately had to bail out wework at a fraction of its previous valuation, writing down billions in the process.

the vision fund faced another crisis when the murder of journalist jamal khashoggi at the saudi consulate in istanbul cast a harsh spotlight on softbank's relationship with its largest investor, saudi arabia's public investment fund. the $45 billion saudi investment, secured in that famous 45-minute meeting, became a liability as global companies distanced themselves from saudi arabia. the incident raised uncomfortable questions about the moral implications of saudi funding in the tech ecosystem.

the following years brought cascading challenges. the cryptocurrency crash wiped billions from softbank's investments in crypto-related companies and exchanges. the pandemic dealt another blow, particularly to softbank's portfolio of sharing economy and real estate companies. the vision fund reported a record $27.4 billion loss in may 2022, as rising interest rates and market volatility punished growth-oriented tech companies. son's aggressive use of leverage, which had amplified returns during the bull market, now magnified losses.

the crisis deepened as softbank's investments in chinese tech companies suffered from beijing's regulatory crackdown. companies like didi faced severe restrictions, while alibaba, long the crown jewel of softbank's portfolio, saw its value plummet amid antitrust investigations and the scuttled ant group ipo. by early 2023, son had retreated from his formerly aggressive investment stance, focusing on defensive measures and debt reduction.

today, as technology investors reckon with the end of the era of easy money and the true promise of ai finally begins to materialize, sama's legacy offers valuable lessons about the delicate balance between visionary investing and prudent risk management. his career at softbank exemplified both the extraordinary potential and the inherent risks of large-scale tech investing – a blueprint for future dealmakers navigating the intersection of innovation, finance, and human ambition.

in this chapter to the money trap by alok sama, you’ve learned that softbank's transformation from telecom provider to global tech investor represented an unprecedented experiment in aggressive tech investing, centered on a $100 billion vision fund. while early successes in deals like arm holdings suggested the potential of this bold approach, later missteps with wework and mounting challenges from geopolitics, regulation, and market volatility coupled with excessive risk-taking and a drift from core ai investment principles ultimately proved the company’s downfall.

okay, that’s it for this chapter. we hope you enjoyed it. if you can, please take the time to leave us a rating – we always appreciate your feedback. see you in the next chapter.