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SoftBank: Why we changed investment focus

SoftBank is eschewing investments in early-stage firms in favor of mature companies in a strategy shift under the helm of newly-appointed President Nikesh Arora.

"It's bigger bets in businesses where we believe they are beginning to exhibit trajectory, potential to break out and become a leader in their space," the 47-year old company president told CNBC on Friday. "We go invest in them, take a reasonable stake, 25-30 percent, and support them for the rest of their lives."

The new strategy comes after the announcement earlier this month that venture capital arm SoftBank Capital would be wound down. That means all future investments will now originate from parent firm SoftBank.

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Arora, speaking on the sidelines of a tech conference in Hong Kong, pointed to overheated interest in early-stage startups as the reason for stepping back from those investments.

"It's the best time to be an entrepreneur. Capital is aplenty, there're lots of people looking to invest in companies; the market is pricing risk very low. You have a huge amount of unicorns or deckacorns out there where people are giving them a lot of money expecting management to execute and execution risk is even priced to zero," he said.

He notes there are likely half a million to a million companies looking for funding around the world.

"So, from our perspective becoming an investor in this market is tough."

SoftBank, a Japan-based investment holding company, boasts a market capitalization of $67 billion thanks to lucrative returns on investments, such as a $20 million stake in Alibaba purchased in 2000. Its latest investments include $20 million into ad-analytics platform Cinarra Systems and reportedly more than $76 million into U.S. online lender Social Finance, according to the Wall Street Journal.

But that's not to say smaller deals are entirely out of the picture.

"There's an old adage that exceptions make the rules. There will always be one or two companies that we find really exciting and say 'why not get involved.' But that's not what we will normally be looking for," he said.

Nikesh Arora
Getty Images
Nikesh Arora

Finding opportunities

So, where exactly does Arora intend to find these mature businesses?

"It's fair to say that opportunities are everywhere: China, India, Silicon Valley, but the nature of opportunities is obviously different," he said.

In China, the trifecta of Baidu, Tencent, and Alibaba are not only creating equal vibrant systems around themselves but also in the broader market, he noted.

"We are seeing Asia waking up. There are lots interesting companies in Hong Kong, Singapore, Malaysia, Indonesia, Korea as well as India, so you are seeing hope and entrepreneurship all over the place."

Beating Founders' Fatigue

After over 35 years at the helm, 57-year old CEO Masayoshi Son—Japan's second richest man—is on the hunt for a successor.

"He and I talked about the notion of fatigue, which sets in in founder-led businesses over a long period of time, where it's hard to keep the same dynamic and put every ounce of energy into creating a good business," Arora said. "Over time you get more complacent."

The secret to ensuring future generations at the company can succeed like Son is to find the same level of passion in entrepreneurs who want to do the same thing Son did 30 years ago, he said.

"In the words of Masa, we are embarking on SoftBank 2.0...We find a way to invest in them, mentor them, work with them, lending them a hand and giving them experience, and also learning from them."

While Son doesn't plan to retire until his late 60s, he launched an in-house program called "Softbank Academia" five years ago aimed at nurturing talent in the hopes of finding the next chief.