20VC Softbank Managing Partner, Jeff Housenbold on How Softbank Approach Portfolio Construction, Their Optimal Investment DecisionMaking Process and What Excites Softbank Most In Opportunities Today

In this episode of "20 Minutes VC," host Harry Stebbings interviews Jeff Hausenbold, a managing partner at SoftBank Vision Fund, known for investing in transformative companies like Opendoor, DoorDash, and Wag. Hausenbold, who previously led Shutterfly and served on the boards of various organizations, discusses his transition from operator to investor, the importance of entry price in investments, and the strategy of focusing on highly fragmented industries for potential high returns. He also emphasizes the importance of being a supportive partner to CEOs, providing insights and guidance without micromanaging. SoftBank's flexible investment approach, which includes secondary components for liquidity and a long-term view that allows riding out economic cycles, is highlighted as a key advantage. Hausenbold shares his personal motivations, including giving back and supporting entrepreneurs, and explains SoftBank's comprehensive due diligence and investment decision-making process, which involves a deep understanding of industries and the potential for companies to grow into multi-billion dollar entities.

• Jeff Hausenbold is a managing partner at Softbank Vision Fund, a leading venture firm.
• Softbank Vision Fund invests in businesses and technologies for the next generation of the information revolution.
• Jeff has backed companies like Opendoor, DoorDash, Wag, Clutter, Brandless, and Qatera.
• Prior to Softbank, Jeff was the president and CEO of Shutterfly for eleven years.
• Jeff has served on the boards of Caesars Entertainment, Groupon, Chegg, and is a board member at Carnegie Mellon University.
• Acknowledgments were given to Tina at Brandless, Eric Wood at Opendoor, and Glenn Solomon at GGV for question suggestions.

"Jeff is a managing partner at Softbank Vision Fund, the leading, the most influential firm in the venture space today, investing more than $93 billion in the businesses and technologies they believe will enable the next generation of the information revolution."

The quote highlights Jeff Hausenbold's position at Softbank Vision Fund and the firm's significant investment in future technologies.

• Jeff spent nearly 30 years as an operator and dealmaker before joining Softbank Vision Fund.
• His experience includes business development and corporate venture roles at Fortune 500 companies, advising venture capital firms, and KKR in private equity.
• At Shutterfly, Jeff oversaw the acquisition of 17 companies, contributing to a total of 46 companies bought and five sold in his career.
• He has been an angel investor and mentor to CEOs in Silicon Valley.
• Jeff was contemplating whether to return to an operating role or move into investing when he met Masayoshi Son, who convinced him to join Softbank Vision Fund.

"Well, I spent my close to 30 year career really as an operator, but also doing a lot of deals."

The quote summarizes Jeff's extensive experience in operations and deal-making, which set the stage for his transition into venture capital.

• Jeff believed his operational experience would differentiate him as a venture capitalist.
• Being a CEO requires focusing on industry, strategy, team assembly, vision, and adaptability to changes in the market.
• Venture capitalists need to understand the industry, market potential, and management team capabilities, similar to a CEO's role.
• Jeff's investing experience provides him with pattern recognition skills to identify opportunities and evaluate teams.
• He is still learning the venture capital game but finds it exciting and rewarding.

"I thought being an operator would be a differentiator. I actually underestimated how much."

The quote reflects Jeff's realization that his operational background significantly impacts his approach to venture capital.

• Masayoshi Son is viewed as a visionary with an impressive track record.
• He persuaded Jeff to join Softbank Vision Fund by highlighting the broader impact Jeff could have across various industries and geographies.
• Jeff was inspired by the potential to assist entrepreneurs in amplifying their visions and achieving business and societal impacts.
• After considering for three days, Jeff decided to join Softbank Vision Fund as a founding managing partner.

"And he convinced me to join as a founding managing partner and help change the world through the vision fund."

The quote captures the moment Masayoshi Son convinced Jeff to pivot his career path towards venture capital with the goal of global impact.

• The roles of CEO and venture capitalist differ yet share similarities in strategic thinking and team evaluation.
• CEOs must develop corporate strategies and create a vision for the company, while venture capitalists assess industries and management teams to invest in.
• Jeff's operational background aids him in understanding what constitutes a strong team and the potential for success in various ventures.
• The transition to venture capital involves applying CEO skills to a broader range of companies and situations.

"So when you're a CEO, you have to think about your industry, your company, your comparative and competitive differences. [...] And as you think about being a venture capitalist, you have to do many of those same things."

The quote draws parallels between the strategic considerations of a CEO and those of a venture capitalist, emphasizing the transferable skills between the two roles.## Transition from Angel to VC

• Harry Stebbings inquires about Jeff Hausenbold's change in investing mentality after transitioning from an angel investor to an institutional VC at Softbank.
• Jeff notes that, contrary to becoming more conservative, the shift to VC has allowed for a long-term view and greater impact due to fewer constraints compared to running a public company.
• Jeff emphasizes the ability to support entrepreneurs in unlocking possibilities without the immediate pressure of quarterly performance.

"As a public CEO, you have to hit your numbers to the penny every single quarter and you're boxed in in some ways into executing against that one strategy. As a leader here at the vision Fund, given our scale, given our long term mentality, given the types of companies that we're investing in, we have the ability not to worry about this month or next quarter."

This quote explains the contrast between the short-term focus required of a public company CEO and the long-term perspective afforded to a VC at Softbank Vision Fund. Jeff highlights the freedom to invest without the pressure of immediate financial results.

• Jeff Hausenbold discusses his perspective on the current investing landscape and macroeconomic environment.
• He believes in a fact-based, data-driven approach to investment decisions at Softbank's Vision Fund.
• Jeff acknowledges economic cycles, including down cycles, but emphasizes the resilience and resurgence of markets, as seen after the 2008 financial crisis.
• He shares his experience at Shutterfly during the financial crisis and the strategic decision to continue investing for growth, which paid off in the long run.
• Jeff suggests that Softbank's long-term orientation and strong balance sheet enable it to support portfolio companies through economic cycles.

"We will have a down cycle and this bull market will come to an end. But if you look at the bear markets, even in the worst of times, during the eight, nine financial crisis, that only lasted 24 months, and then we had an amazing resurgence since the bottoming in March of 2009."

Jeff acknowledges that economic downturns are inevitable but points out the historical pattern of recovery and growth following such downturns. He uses the 2008 financial crisis as an example of market resilience.

• Harry Stebbings expresses curiosity about Softbank's portfolio construction, given the range of investments from companies like Uber to smaller ventures like Wag.
• Jeff Hausenbold outlines the historical context of Masa's investment strategy, noting the evolution from PC and software to AI, machine learning, and data science.
• Softbank aims to support portfolio companies with capital, connections, and counsel, allowing them to scale globally and invest in technological differentiation.
• Jeff describes Softbank's investment flexibility across stages, industries, and geographies, with a preference for meaningful size minority investments in mid to late-stage companies.

"And so we're riding these very large technological shifts that aren't going to happen over one or two years, but they're going to happen over decades."

Jeff explains Softbank's investment strategy as being focused on significant technological trends that will unfold over many years, indicating a long-term investment horizon.

• Harry Stebbings asks about the due diligence process at Softbank and how it compares to early-stage investment due diligence.
• Jeff Hausenbold contrasts the due diligence for late-stage investments with that of early-stage, describing a more in-depth process involving industry mapping, competitive analysis, and extensive data review.
• The diligence process at Softbank involves understanding the value chain, meeting with management teams and industry experts, and can take between four to ten weeks.
• Jeff emphasizes that late-stage investments have more data points to analyze due to established product-market fit, customer base, and often global operations.

"The type of diligence we do is just much more in depth because there's more data and more data points."

This quote highlights the comprehensive nature of the due diligence process for late-stage investments at Softbank, which is data-rich and allows for a deeper analysis compared to early-stage investments.

• Harry Stebbings is interested in the investment decision-making process at Softbank.
• Jeff Hausenbold outlines the steps in Softbank's investment decision-making, including term sheet negotiation, management presentations, and meetings with Masa before finalizing an investment.
• The process involves a substantial investment committee memo, questions from LPs, and a committee decision.
• Jeff notes that post-investment, the focus shifts to supporting the company in achieving its goals.

"Masa meets with every single entrepreneur and management team before we make an investment."

Jeff emphasizes the personal involvement of Masa, Softbank's founder, in the final investment decision, indicating the hands-on approach and importance placed on the entrepreneur and management team.## Price Sensitivity and Investment Returns

• The highest determinant for investment returns is the entry price, according to historical data.
• Good investors should be valuation sensitive but also consider the potential of the company.
• For long-term investments, arguing over a small percentage of valuation may not be worth it.
• It's important to get alignment and help the company scale through networks and partnerships.
• Overpaying for deals that do not meet internal hurdle rates is avoided due to fiduciary responsibilities.

"The highest r squared determinant for investment returns is your entry price."

This quote emphasizes the importance of the price at which an investment is made, suggesting that it's a significant factor in determining the overall returns.

"We're not going to overpay for deals that we think are not going to meet our internal hurdle rates."

Jeff Hausenbold explains that while they are valuation sensitive, they also have a responsibility to their limited partners (LPs) and employees to ensure investments meet certain financial criteria.

• Venture firms often make large returns not on the initial investment but through follow-on investments.
• A portion of the fund is reserved for follow-ons to support portfolio companies as they grow.
• Follow-on investments have been made in companies like Doordash, Compass, Katera, and Opendoor.
• The ability to invest further in portfolio companies is a strength of their investment platform.

"It's the compounding effect of those dollars into your winners that often carry a fund."

Jeff Hausenbold highlights the strategy of investing additional funds into successful companies to maximize returns.

• The fund is designed for a 12-year term with possible extensions, focusing on long-term capital investment.
• Current focus is not on liquidity events but on helping companies grow to optimize their value.
• Secondary liquidity is provided for early seed and stage investors, benefiting the ecosystem.
• The fund's scale allows for a symbiotic relationship with other players in the investment community.

"We're a twelve year fund with two one year extensions. So we're a 14 year fund pragmatically, and we're only 22 months into that journey."

This quote outlines the fund's long-term investment horizon, indicating that liquidity is not the immediate priority.

• Jeff Hausenbold values a partnership approach with founders, drawing from his experience as a CEO with a supportive board.
• He acts as an advisor and mentor to CEOs, who often initiate contact for strategic discussions.
• The goal is to be a value-added partner without interfering in the company's operations.

"Most of my CEOs call me at least once a week and I don't have to call them."

Jeff Hausenbold describes his proactive and trusted relationship with the CEOs of the companies he invests in, which is based on mutual respect and his role as an advisor.

• Opportunities in industries where a single player dominates are rare but can lead to outsized returns.
• Jeff Hausenbold looks for highly fragmented industries where the largest player still has a small market share.
• Investing in startups that can capture a small market share in these industries can still build substantial businesses.
• The focus is on backing entrepreneurs with technological advantages and novel approaches to capture market share.

"Highly fragmented industries where the largest player still represents a modest share of the industry."

Jeff Hausenbold explains his investment strategy of targeting industries with no clear market leader, where startups have room to grow and become significant players.

• Time is allocated more towards nurturing existing investments rather than prospecting new ones.
• Time distribution is not solely based on the size of the investment but also on the growth potential of early-stage companies.
• The natural rhythm of what the portfolio companies need dictates time allocation.

"I give a disproportionate amount of my time to the existing portfolio."

Jeff Hausenbold discusses his approach to time management, favoring the development of companies already within the portfolio to maximize their potential and the fund's returns.## Role of Board During Company Milestones

• Boards are more heavily relied upon during "spike times" such as M&A discussions, management team building, product launches, or geographic expansions.
• CEOs depend on boards to navigate through these critical periods effectively.

Other times they're in the middle of an m, a discussion, or they're building out a management team, or they're introducing a new product, or they're looking to do a geographic expansions, those kind of spike times where founders and ceos rely more heavily on the boards.

The quote emphasizes the varying degrees of reliance on board members by CEOs, particularly during strategic or transformative phases in a company's lifecycle.

• Investment decisions should be considered relative to the percentage of the portfolio, not the absolute number of zeros in the check.
• This approach allows investors to maintain focus on the impact of the investment rather than the size of the capital being deployed.

So I think about it as allocation of percentage of the capital under management, not necessarily the absolute number of zeros in the check.

Jeff Hausenbold explains that investment size should be viewed in terms of its proportion to the total capital under management, which helps maintain a balanced perspective on investment decisions.

• Jeff Hausenbold's favorite book, "Fountainhead," was influential in shaping his worldview and aspirations beyond his upbringing on welfare and food stamps.
• Giving back and having a positive impact on entrepreneurs in Silicon Valley is a key motivator for Jeff, stemming from his own life experiences.

My favorite book was Fountainhead. Growing up expanded my worldview and allowed me to get out of my situation of growing up on welfare and food stamps, and to see the world through the eyes of a different protagonist.

Jeff credits the book "Fountainhead" with expanding his worldview and providing inspiration to rise above his challenging early life circumstances.

• "Don't let them mess with your swing" is a motto that Jeff frequently reverts to, emphasizing perseverance and commitment to one's vision in the face of rejection.
• Believing in the inherent goodness of people is a guiding principle that informs Jeff's optimistic approach to possibilities and helping others achieve their dreams.

Don't let them mess with your swing. As an entrepreneur, people are going to tell you no often, but you have to have the kutzpa to continue to push forward for your own goals and your own vision.

This quote reflects Jeff's belief in the importance of resilience and self-belief for entrepreneurs navigating the challenges of building a business.

• Balancing the role of advisor with the need to avoid becoming an operator is a significant time management challenge.
• Managing the number of portfolio companies and allocating time and resources effectively is a key part of Jeff's role.

Finding the time. You want to go deep with every single company and situation, but finding the right balance between being an advisor, not an operator, and the balance between number of portfolio companies.

Jeff discusses the challenge of time management, particularly the need to engage deeply with each company while maintaining an advisory role and managing a portfolio of companies.

• Jeff's typical week includes meeting with new companies, attending board meetings, conducting compensation calls, interviewing management team members, and participating in internal firm activities.
• Balancing these responsibilities requires careful time allocation and prioritization.

Week, I'm probably meeting with ten new companies that are pitching SoftBank. I'm sitting in two board meetings, having a couple compensation calls, chatting with my ceos, interviewing members of prospective members of their management team, helping to run and scale the firm itself, sitting in executive management meetings or valuation committee meetings, going through diligence and work product and mentoring and coaching my team internally.

The quote provides a snapshot of Jeff's busy schedule, highlighting the diverse set of responsibilities he manages on a weekly basis.

• Jeff believes that people are inherently good, a perspective that shapes his worldview and approach to helping entrepreneurs.
• This belief is rooted in his upbringing and reinforced by the values instilled by Pierre Mittadar, the founder of eBay.

People are inherently good. And if you believe that, it gives you a worldview that allows you to see the possibilities.

Jeff expresses his fundamental belief in the goodness of people, which influences his optimistic approach to his work and life.

• The decision to invest in Katera, a company aiming to bring affordable multifamily housing to the market, was driven by the potential societal impact and investment returns.
• Jeff's personal background living in an abandoned building informs his passion for making a meaningful impact on society through investments.

We did a follow on investment in Katera, which is aiming to bring affordable, multifamily housing to the world in about 40% of the time and 30% of the cost.

Jeff highlights the recent investment in Katera and its alignment with his desire to contribute to society, particularly in the area of affordable housing, which resonates with his personal experiences.