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Softbank's Vision Fund: Why we invested in OakNorth
The investment behemoth bought a stake in the bank, which made it Europe’s largest fintech by valuation, in early 2019.
The Vision Fund, the $100bn plus investment portfolio from SoftBank, made its second foray into European fintech back in February 2019 with a $440m stake in OakNorth, propelling the challenger bank to the title of Europe’s most valuable fintech.
But why did the Vision Fund back OakNorth over the hundreds of other fintechs looking to be the next big thing?
Munish Varma, a partner at the Vision Fund, speaking at the Innovate Finance Global Summit 2019 last week, outlined three major reasons why the late stage disruptor-backer added OakNorth to its illustrious portfolio and ecosystem of firms which includes punchy stakes in Uber and WeWork.
The first close of the $100bn fund was in May 2017 and so it is just coming up to a two year anniversary . Varma says the reason the fund was set up centres on the fact that data has become very prevalent with more data created in 2018 than in the entire time of history put together while the cost of processing that data has also come down dramatically.
“When you couple that with the rise of AI and machine learning and our ability to make sense of that data having also increased exponentially,” he said
At the same time, he says, companies are staying private for much longer before they go to public markets for capital.
“That doesn't mean they don’t need capital,” Varma said.
“In fact their capital needs are much greater now because these companies have to scale much faster and go global much faster,” he added.
So why exactly did the team pick OakNorth? Firstly, it is the quality of the management team, Varma said..
“I have spent a lot of time with Rishi [Khosla, OakNorth’s CEO] and his management team. They are phenomenal world class entrepreneurs. We are looking for founding teams of entrepreneurs that are ambitious, share our vision and ambition for the future and have the energy and stamina to execute a bold and ambitious plan,” he said.
Secondly, Varma says, the Vision Fund managers look at the market that fintechs are serving.
“The market that Rishi is trying to serve is massive...the total loan market for SMEs in a credit constrained market is $7trn. With the valuations a starting point our expectation is that it is going to be many multiples of this.”
The third thing Varma says is key for a good Vision Fund investment is the time period of a company's growth that it invests in.
“We are not early stage investors, we are not VCs we are late stage growth capital. The time at which we invest we take a look as to what the product has done, is the product capable of real scale and can our capital be used to start to scale that product much faster and take it to new geographies or expand its products,” he said.
“Those were the three factors we really liked about OakNorth.” he added.