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Apr 16 2019 - San Francisco, CA

Fundraising: Raising from Softbank: Michael Tannenbaum

Chris R:
Welcome to brex in the black where we discuss finance for operators. We have our CFO here today to talk about raising from SoftBank [back at SoFi]. Michael.
Michael T:
Yes, that's a hot topic these days. And I like to say that I did a raise from SoftBank. Back in 2015. Before it was fashionable - it's become very fashionable. And that was a raise actually before the vision fund. So this was just when it was still kind of the telecom company in Japan and they were raising funds.

So we [at SoFi] raised a billion dollars, led by SoftBank, back in 2015. And it was a it was an interesting experience. I was 27, at the time working at SoFi, social finance, the student loan company, as the VP of Finance.

The round started when I was in China with the CEO kind of kicking off the round. And we sort of got an inquiry from SoftBank. I remember, I sent a couple follow ups, I kind of just went anyway. And then all of a sudden, we got this notice like, oh, please come to San Carlos, where they have a US office. And we went in there, we were to meet with masa, the main guy. And he was on this big screen in the room. And we were... I don't remember I was kind of awkward. I didn't know where to sit. Because I was the VP of finance with the CEO with me. He was kind of doing the pitch and I was there with the computer in case there were questions you see. And there was tea because it was kinda a Japanese vibe. And I was again with my little computer kind of ready to answer any questions. They didn't come up. So I don't think I really talked. But we were raising about 200 million at the time. And then Masason was like: 'No, you're raising a billion.' And so it was kind of crazy. So we came out and the CEO Mike and I were in the car on the way back. He drove a Tesla. And I had my little myfi, I always have a myfi with me. I don't believe in the carrier - the Wi Fi that comes from the phone. It's not strong enough. So I have my own little device I turned it on. I'm trying to email the board - I'm like how the hell are we gonna get this approved? We're trying to raise 200 million now we're raising a billion - dilution, everything. But anyway, I'm, you know, sending emails, we're talking, everything's going crazy. And all of a sudden, somehow we got a car accident.
Chris R:
And what hit the curb?
Michael T:
I think Mike tried to blame me. I'm not sure exactly who was to blame. So anyway, the tire was flat. We were two tech idiots trying to change the tire - didn't work. So we call the people they're coming. And we walk across the highway to have dinner at Denny's. It was walking distance
Chris R:
While your car is just on the side of the road?
Michael T:
On the side of the road. And I said to Mike at the time, I said we're the only people who have ever raised a billion dollars and celebrated at Denny's. So that was the story.
Chris R:
I think you might be the only people who have ever celebrated that Denny's.
Michael T:
We might be. I mean, I don't know. I mean, every CEO I've worked with has very specific taste in food. I don't know if that's a requirement. Maybe it's a requirement if you're tall and have specific taste in food. But Mike had all these rules and Henrique our CEO here [at Brex] doesn't eat vegetables and this and that. So, you know, keeping up with the diet's is hard. I just eat whatever sort of meal.

But on SoftBank, I think the interesting thing that they've done, or what they do is they sort of push you as a company, almost like a coach would say: no raise more, if you raise more, how much faster can you grow? It's almost this idea that raising a lot of capital is a moat. So you kind of build a moat around your business. Because you're the first to raise so much money that other little ankle biters that are trying to compete can't, because SoftBank has sort of picked this winner by injecting so much cash into it. I think it's largely a psychological thing. Because once you get up to that scale, I mean, how much can you really execute on in 200 million, versus a billion?

I know, it depends on the business. So if you think about it, SoFi was capital intensive, and so it was kind of a moat, because it allowed the refinancing of student loans, so they were allowed to incubate the lending businesses on their balance sheet, whereas other startups wouldn't have that ability. So I think in capital intensive businesses, it's probably more than psychology, in businesses that are running huge losses like for food delivery. I think [Softbank] has been pretty active in doordash, although it hasn't necessarily picked a winner, because you have caviar and ubereats and grubhub. So this is a very competitive space. So I don't think it actually worked there. I think for SoFi it did sort of work. I think it could work in other - driverless is another area that's very capital intensive. And they've definitely done investments there. So it does seem that softbank intends to try and pick markets where capital intensity, if there such that capital injection could be a competitive advantage. But I agree in the sense of like social networks, having more money doesn't necessarily mean I mean, yes, you can hire more talent, etc.

But, that's not the primary thing. It's more about product and usage and network effects and all the stuff that you can't just throw money at.
Chris R:
So somebody who wanted to raise money from SoftBank, what would they do?
Michael T:
Yes. So you need to know them, right. First of all, SoftBank is not in the early early stage game. No. So they probably find you.
Chris R:
That's just too much money for them to do early stage, right?
Michael T:
And you invest a billion dollars, right, in $10 million checks - just takes too long. So I think that they are probably going to find you once you're at a specific scale. And if not, I'd say that, there's probably through your existing investors, they're likely to have some relationship with SoftBank and their network.

I think the thing about SoftBank is that it's definitely a powerful counterparty. They're big, they can come in sometimes, if they see competitive dynamics, they could potentially go fund one of your competitors if you don't take their money. So kicking off that conversation with SoftBank is kind of a serious thought. You want to tread lightly, but I think if you are right for them, and they're right for you, it can be very powerful match in an interesting industry because they're willing to take extremely big bets on people.

I think wework is actually something we didn't talk about earlier. But that's an example. Wework co-working, it's capital intensive. There are a fair number of competitors. And SoftBank likes to come in and pick the winner. They sort of picked that winner. I think the same happened with Uber.
Chris R:
All right, Michael, thanks so much for talking about fundraising from SoFi.
Michael T:
Thank you, Chris.
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