Onsale a possible next target for Softbank per Mercury News
Puzzling out Softbank's investment strategy
BY ADAM LASHINSKY
Mercury News Staff Writer
7/17/98
Softbank Holdings Inc., the corporate arm of the giant Japanese software
distributor, trade-show organizer and magazine publisher, is on an
investment tear. Putting together a few jigsaw-puzzle pieces of its
investment strategy could give investors a hint about where Softbank is
likely to strike next.
Let's get the suspense over with first. Softbank's recent pattern is to
make big bets on companies its venture arm already has staked or with which
it has a joint venture in Japan -- or both. The three best examples are
Yahoo Inc. (Nasdaq, YHOO), E*Trade Group Inc. (Nasdaq, EGRP) and soon-to-be
public Geocities.
In each instance, Softbank has made a relatively small early-stage
investment, followed up with larger stakes by its corporate entity and in
the meantime formed partnerships in Japan.
That makes three Silicon Valley companies prime targets for Softbank
investments: Onsale Inc. (Nasdaq, ONSL), VeriSign Inc. (Nasdaq, VRSN) and
USWeb Corp. (Nasdaq, USWB). As Softbank's after-market blessing usually
boosts a company's stock -- E*Trade's is up 36 percent since Softbank's
disclosure of its investment -- each could get a pop if Softbank were to up
the ante.
''That's not completely nuts,'' allows Gary Rieschel, the San Jose-based
managing partner of Softbank Technology Ventures, the company's mostly
independent venture capital arm.
Venture capital firms typically don't take stakes the size of Softbank's
recent $250 million infusion into Yahoo or the $400 million piece it's
buying of online broker E*Trade. As such, Rieschel's outfit isn't
responsible for those deals. They're the work of Softbank founder Masayoshi
Son.
But the venture outfit offers a window on the parent's intentions. Rieschel
acknowledges that he acts as a ''scout'' for the corporate organization,
including sharing information about portfolio companies.
Softbank is entitled to the updates, of course, though only as much as
other investors. Headquarters in Japan invested only $12 million in
Softbank Technology's recently closed $320 million fund.
Softbank's aim, Rieschel says, is to identify companies it can work with in
Japan and make money on in the United States.
Onsale recently formed a Japanese online-auction joint venture with
Softbank. But the big Japanese company hasn't yet invested.
''They appear to be making investments in companies that have relationships
with them,'' notes Onsale CEO S. Jerrold Kaplan, who adds only that ''they
have not made an investment in Onsale.''
A spokesman for USWeb scoffs at the idea of Softbank pumping money into the
consulting firm, noting that USWeb has used stock -- not cash -- for all 33
of its acquisitions in the last 18 months. Softbank's venture arm still
holds a piece of USWeb.
And at VeriSign, Softbank retains its venture stake and is part of, though
not the leader of, a joint venture in Japan.
Venture capitalist Rieschel suggests that Softbank Holdings will land
another piece of big game soon that will illuminate its strategy. He notes
that founder Son has been criticized in the past for the rich valuations he
awards.
But, says Rieschel, ''The valuations are rounding errors compared to
deciding if'' the investments help Softbank build up its assets in Japan. |
