[HN Gopher] SoftBank has walked away from startups, months after...
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SoftBank has walked away from startups, months after submitting
term sheets
Author : jmsflknr
Score : 197 points
Date : 2020-01-06 14:16 UTC (8 hours ago)
(HTM) web link (www.axios.com)
(TXT) w3m dump (www.axios.com)
| xivzgrev wrote:
| ...duh? They just had WeWork blow up in their face and naturally
| they're going to pump the brakes. There were probably a lot of
| in-process deals going on.
|
| Coming from someone who worked in a company that received
| Softbank investment, it's a huge hassle. The ONLY reason to take
| Softbank money is to get a huge sum of money at a huge valuation
| and reduce your "cost" of said money. But for me personally, the
| costs aren't worth it.
|
| First, there's the inflated valuation. It's a great MO for
| Softbank - they get you by stroking your ego and flashing big
| (exaggerated) valuations. But does anyone ever think about the
| next round? No one else after is going to invest at that
| valuation + extra, unless you really knocked it out of the park,
| so you are stuck with them for future rounds. Or IPO (Hello
| Uber). Startups are hard - why are you making it more difficult
| for yourself to succeed?
|
| Second, the ongoing effort. You don't have one or two guys at a
| VC firm you are working with, you have a bureaucracy you are
| working with, in a completely opposite timezone, with a very
| different working culture.
|
| _Maybe_ it makes sense for a company who is on their last round
| of funding before IPO, just needs one last cash push to get
| everything there, and can pay a bunch of people to deal with the
| BS. But that 's not most startups.
| jjmorrison wrote:
| I don't read anything here that isn't par for the course when it
| comes to fundraising. This is how it works with all VCs. Money
| isn't in the bank until it's in the bank. I get the frustration
| that it wastes time, but for better or worst, that's the game
| today. It might be a problem worth discussing, but if so, it's a
| venture capital problem, not a Softbank problem.
| code4tee wrote:
| Term sheet isn't a deal. Same way an "accepted offer" on a house
| isn't a purchase contract until you have an actual contract.
|
| Clearly SoftBanks is having its challenges but this just sounds
| like normal deals falling apart during pre-closing due diligence.
| You don't have a deal till you have a deal.
| CalChris wrote:
| If a term sheet isn't a deal, and I kinda agree that it isn't,
| then what is an _exclusive, six-month term sheet_? Why would
| someone sign a six-month exclusive non-deal?
|
| BTW, a term sheet is usually very specific about it being _for
| discussion purposes only._
| bsder wrote:
| Some level of exclusivity isn't necessarily bad. The
| purchasing company doesn't want you using their deal to shop
| around. VC's are sheep, and having _Softbank_ interested
| would generate lots of FOMA (Fear of Missing Out) amongst the
| herd.
|
| However, 6 months instead of 30-45 days without a useful fee
| for non-execution sounds like the company wasn't in a good
| place to begin with.
| matthewowen wrote:
| To take a lesson from Thucydides, "the strong do what they
| can, and the weak suffer what they must".
| op00to wrote:
| Real Estate agents that play cute games between offer and
| contract like tweaking terms often find their offers at the
| bottom of the piles, some times lost entirely!
| yorwba wrote:
| AFAIK, in contract law, an "accepted offer" _is_ an actual
| contract, even if there 's no paper record of it (though it may
| be a bit hard to prove acceptance without one). However, when
| someone puts their house up for sale, they're usually not
| offering it to anyone yet, rather they're inviting others to
| offer to buy it.
|
| I think a term sheet is also just an invitation, not a binding
| offer.
| LanceH wrote:
| It is in the realm of "tortious interference" to outbid
| others then fail to follow through with it, but it isn't
| generally a contract when two legally represented groups are
| agreeing over something which is expected to be defined on
| paper.
| gumby wrote:
| TS always has co tingencies to allow the prospective investor
| to back out.
|
| But taking months to close a deal seems absurd.
| whiddershins wrote:
| I believe in nys you can't have a verbal real estate
| transaction
| Nursie wrote:
| Likely depends on the country - in England, on a house sale,
| either party can back out after an offer is accepted, free of
| consequences, until contracts are exchanged.
| hirako2000 wrote:
| And there are unwritten rules in the solicitors community,
| do that a few times and you are blacked out.
| dmurray wrote:
| Does this work? For house buying, solicitors are often
| taking on first-time clients, and they don't have a lot
| of leverage against the client if the client decides to
| renege on the deal.
| Nursie wrote:
| By whom?
|
| Solicitors get paid for work done until that point
| regardless, and I doubt sellers have that information
| when deciding whether to accept an offer, and they are
| who makes the choice to accept.
|
| Sellers also pull out frequently - had that happen to me
| a few times. It's frustrating but it happens.
| bryanrasmussen wrote:
| My wife's family is selling a house in Italy and it blew my
| mind that when you say you want to buy the house you have
| to give a portion of money (in this case I think it was
| 12000 euro) which you do not get back if the deal falls
| through and you don't buy the house.
|
| The above not very precise as I am not involved in it and
| not especially interested. But the detail stuck with me as
| one of those other cultures are strange things.
| jedberg wrote:
| In the US you have to put down an "earnest money
| deposit", which is sort of the same thing. You _can_ get
| it back, but there are usually very specific rules about
| what conditions warrant getting it back, and "I didn't
| like the house" isn't one of them.
| wolco wrote:
| In Canada it is the same and you could get sued in court
| for the full amount.
| bryanrasmussen wrote:
| can you get it back if the bank decides not to loan you
| the money to complete purchase?
| sokoloff wrote:
| In all offers I submitted and both houses I bought, that
| was the case.
|
| That also allows the buyer to get out for any reason
| within the financing contingency window (by just not
| complying with all the ridiculous paperwork demands from
| the lender, "oops, sorry, mortgage didn't end up coming
| through")
| xsmasher wrote:
| That would be a "Mortgage Contingency," which is common
| in California. Yes, you get back your earnest money if
| there is a mortgage contingency in the contract but you
| can't get a loan.
| richardwhiuk wrote:
| That's very specific to house sales I think.
| SamReidHughes wrote:
| There are some other specific exceptions, like exclusive
| copyright licensing in the USA.
| [deleted]
| AstroJetson wrote:
| "Term sheet isn't a deal. Same way an "accepted offer" on a
| house isn't a purchase contract until you have an actual
| contract."
|
| It's not a deal until the check clears. I've seen real estate
| and business deals fail at the very, very last moment.
| Sometimes people do amazing things at the last second.
| CerealFounder wrote:
| I think you're missing the point. There are established norms
| that are accepted by the industry during negotiations.
|
| Another good example of a firm that is notoriously dishonest
| about term sheets is Global Founders Capital (the rocket
| internet people). They are known to blow out rival firms offers
| financially and then after everyone is out, come back and try
| to renegotiate at more onerous terms.
| ThrowAwayFndr wrote:
| As an ex-founder, I've had VCs reneg on term sheets/handshake
| deals several times before. This is commonplace.
| CerealFounder wrote:
| Eh. It's not about the reneging its about the communication
| and intent.
|
| From experience its a very small marketplace (esp with big
| checks). So there is a very high expectation that people
| act with longterm consideration of one another and
| subsequently their reputation. Just disappearing, or
| changing terms without a material change is dishonest
| period.
| lmeyerov wrote:
| Yeah, though part of due dill from founders side should
| reveal this - you ask past portfolio co's what kind of
| terms the firm leans to + their preferred process, and if
| their process is playing stupid partner games with stupid
| terms, you price that in to your negotiations. And yes,
| it's annoying + common, esp. the bigger and more diverse
| you go... . In theory you can add stuff like breakup and
| late fees: that's unusual in startup fundings, but the
| weird softbank-isms may make that kind of term more
| aligned.
|
| I now treat VC as a funny form of enterprise sales, and
| this happens there too. Want a 6/7/8 figure deal? Same
| thing: has the group bought stuff at that level before, if
| so, what is the process? And, the more critical the deal,
| the more imp. you talk to folks who also recently ran the
| gauntlet.
| CerealFounder wrote:
| It also stands to be said that there is commonality between
| these types of "firms."
|
| The two firms are essentially dictatorships masquerading as
| firms. What you get is a bunch of definitionally impotent
| lieutenants who go make deals and carry them to the 1 yard
| line and then the boss (Masayoshi or oliver) decide again as
| if nothing had happened before whether or not to execute.
|
| Unless the bosses are the ones leading the deal, know that
| you there is zero good faith and a lot of risk as far as
| outcome goes.
| xwowsersx wrote:
| Exactly. Just because you _can_ walk away from a term sheet
| doesn 't mean doing so doesn't make you a giant jerk. Try
| doing that regularly and see how long you last in this
| business.
| 0zymandias wrote:
| There seem to be two types of people debating with each other
| in this thread.
|
| 1. Some people that have real-world experience with raising
| money and term sheets. They understand what the norms and
| expectations are in addition to understanding the legal
| aspects.
|
| 2. Other people that lack the real-world experience and are
| just speculating without understanding the norms. They are
| only referring to the legal aspects.
| tgs4 wrote:
| ^ The deal is never actually done until the money is wired
| and cleared into your account. Everything that happens
| before that including signed papers and handshakes are just
| negotiations.
| okcando wrote:
| Another way to approach interacting with other humans is
| to understand that the law only describes minimum
| expectations and isn't a replacement for ethics or common
| decency.
|
| You can use all the tools of the law to disadvantage
| others but word will get around that you're a dirty
| dealer and it'll be their privilege to not do business
| with you anymore.
| vorotato wrote:
| That only works if anyone is doing it.
| shard972 wrote:
| And it just so happens that large companies like softbank
| fall into this category.
| shawnz wrote:
| What makes you think the people with opinion #1 have real
| world experience and the people with opinion #2 don't?
| Maybe some people here just have a different understanding
| of what the norms are.
| alexnewman wrote:
| I'm sorry, when you shake hands that's it. Here in SV we
| believe in trust.
| OnlineGladiator wrote:
| > Here in SV we believe in trust.
|
| You trust venture capitalists to care about people more than
| money? I'm genuinely asking, as I cannot fathom that
| worldview.
| readams wrote:
| They care a lot about their reputation. Reneging on
| promises and dealing in bad faith is a quick way to get a
| bad one.
| onetimemanytime wrote:
| depends on their reputation and mode of operation before. If
| they always stuck to term sheets and now they are walking away
| it's news. Legal or not is irrelevant here. A lot of times CEOs
| shake hands and lawyers work the details...reneging even if
| it's legal (depending on how /where) it's damaging to your
| reputation.
| Zigurd wrote:
| That term sheets are not binding is technically correct (the best
| kind of correct, I'm told). But it should be so reputationally
| bad that it should only happen among third tier players and
| wannabes who don't have reliable limiteds.
| jacquesm wrote:
| I've had a VC walk out on a signed terms sheet due to 9/11. I
| didn't like it but totally understood their motivations and
| it's hard to enforce a terms sheet. Still, it was less than
| classy and I would not attempt to do business with them again.
| JumpCrisscross wrote:
| Term sheets are not binding. An expectation of a term sheet is
| more tenuous still. Little described in this article approaches
| "shafting". (Creator's 6-month exclusive term sheet being the
| exception. But, like, hamburger robots.)
|
| > _Given we're a fiduciary and investing very large amounts of
| capital, our investment process is more rigorous than unregulated
| investors and typical VCs._
|
| Hilarious. Rigorous process? SoftBank?
|
| Also, who regulates the Vision Fund? Do they think they're unique
| in having a fiduciary duty to their LPs?
| rdlecler1 wrote:
| They are a registered investment advisor unlike most VCs who
| have a VC exemption. a16z also took this step to give them more
| flexibility.
| ping_pong wrote:
| This sounds like VC 101. Same tactics, or worse, occur at all VC
| firms across Silicon Valley.
| blueadept111 wrote:
| "Time is one of a startup's most valuable assets, and several
| startups and their CEOs have been robbed of time by SoftBank's
| actions"
|
| Oh boo hoo! The line up for getting someone's else money slows
| down sometimes? Or even stops! The nerve!
| brenden2 wrote:
| They're trying to make this a story about SoftBank being bad, but
| this just sounds like normal business. I have been "shafted" by
| VCs before, in similar ways, but none of them were SoftBank
| specifically. This is just an attempt to make a story (and drive
| clicks) out of the punching bag du jour.
| BitwiseFool wrote:
| What do you mean by "Shafted"? I'm interested to know what they
| did.
| brenden2 wrote:
| The original title (before it was changed) included the word
| "shafted".
| apozem wrote:
| > They're trying to make this a story about SoftBank being bad
|
| Don't overthink it and assume motivations with zero proof -
| they're reporting facts about how SoftBank is dragging their
| heels on some deals.
|
| At the very least, it's informative and helpful to anyone who
| may deal with them in the near future.
| austenallred wrote:
| While it's legal, it is not "normal" for VC funds to be backing
| out of a half dozen deals at the same time.
|
| To continually do so without finding a carcass in the details
| would be reputation suicide for any legitimate VC.
| toast0 wrote:
| The timeline for the backing out is around the WeWork IPO
| debacle. This makes a lot of sense --- in reaction to that,
| maybe they have new standards for investing, maybe they don't
| even know what the new standards are yet, maybe they don't
| even know when the new standards will be available, (almost)
| all the deals in progress are going to be screwed.
|
| This kind of stuff is more common with corporate acquirers
| than established VC, I would expect, but it's kind of part of
| the game. If you have leverage as the start up, you demand
| short timeframes and meaningful deposits to keep the
| investors on task; if you don't have leverage, you get a bad
| deal (6-month exclusivity is crazy).
| austenallred wrote:
| Nah, where there's smoke there's fire.
|
| They're fucked because their LPs are losing their minds,
| and as a result everything changed for them and they're
| bailing on deals.
| Kye wrote:
| What's an LP in this context?
| OnlineGladiator wrote:
| LP stands for Limited Partner. They are the people that
| actually provided the funding, but they have an
| arrangement where they have severely limited control
| (basically none) as to how the money is managed once it's
| part of the fund. The reason for this is because they are
| trusting the VC firm to actually invest their money
| wisely, and the VC firm needs to able to do that without
| constant interference from the investors.
|
| https://www.thebusinessofvc.com/blog/limited-partners-101
| jonny_eh wrote:
| All true. I suspect in this case Softbank was depending
| on the Vision Fund LPs to come back for round 2, but the
| WeWork fiasco scared them off, and now WeWork is in panic
| mode.
| MartianSquirrel wrote:
| LP is short for Limited Partner
| ganstyles wrote:
| Limited Partner, the people who out up money in VC funds
| for the General Partner to invest/manage. iirc though LPs
| cant have an actual say in investment/strategy or else
| they risk losing the "Limited" status.
| JumpCrisscross wrote:
| > _this just sounds like normal business_
|
| All except Creator. Getting a company to enter into "an
| exclusive, six-month term sheet" is unusual and shitty.
| jagged-chisel wrote:
| Having read this, I'd think (as the startup) I'd insist on a
| clause that the contract isn't binding until at least $X or
| %Y have been received from the VC (defining "received" as
| "the money deposited and cleared.") And if we find another
| investor before you send the money, the contract is dead and
| we renegotiate a new one.
| jethro_tell wrote:
| If you have the leverage for that, it could work. But you
| probably also wouldn't sign a 6mo exclusivity deal if you
| had that kind of leverage . . . so?
| heyflyguy wrote:
| It does suck that it happened, and I've been on a similar
| receiving end of that - but at the end of the day the
| founders had to sign and the board approved that "deal".
| utopian3 wrote:
| What are the negatives that the six-month term sheet implies
| that I'm missing (I'm not familiar with them)?
| brenden2 wrote:
| The negative is that you can't go out and do fundraising
| with any other parties until that 6 months is up. Depending
| on how much runway you have, that might be terminal for
| some startups.
|
| I think 30 days is more typical, but YMMV. If the company
| is in dire need of funding then the VCs can usually get
| away with more.
| OnlineGladiator wrote:
| > The company pushed back, and SoftBank agreed to wire
| between $10 million and $15 million as a show of good
| faith.
|
| It sounds like they probably came out ahead anyway, if
| runway was even slightly a concern for them.
| Bartweiss wrote:
| A six month lockup with no guarantee on the other side
| sounds crazy, but with a cash transfer to compensate and
| provide runway it looks a lot more reasonable.
|
| (Of course, it depends a lot on the missing detail of
| what SoftBank _took_ for that money in the absence of a
| deal. Was it a loan? A smaller investment at the same
| terms /valuation planned for the big one?)
| OnlineGladiator wrote:
| I'm not saying Softbank is a great fund (I've thought
| they made shitty investments long before the recent media
| frenzy in the past year), I just meant Creator isn't
| exactly a startup starlet that is drowning in funding
| opportunities. They're ~10 years old, have raised ~25 MM,
| and I heard their last round was already a downround
| (pretty bad considering how little they've raised and how
| long they've been around).
|
| Looking from the outside, Creator was likely desperate
| for cash and happy to agree to anything - which they did.
| And unless they ended up with no cash at all after this
| brouhaha, they are probably still better off than they
| were initially.
|
| And who knows - maybe Softbank will still give a stupid
| amount of cash to another terrible robotics startup.
| They've certainly done dumber things before.
| CalChris wrote:
| What did Creator _get_ for this six months of exclusivity?
| brenden2 wrote:
| Indeed, 6 month does seem onerous. Definitely a tough lesson
| learned there.
| duxup wrote:
| It might be shitty but it's not like they didn't know it was
| 6 months.
|
| I'm not trying to absolve Softbank here but if 6 months is
| bad, Creator knew it... they signed it.
| rdlecler1 wrote:
| Even worse, SB now casts shade on the startups by claiming they
| do more rigorous diligence with the implication that if a deal
| doesn't close it was because something was wrong with the
| startup.
| wmf wrote:
| If their new diligence is so rigorous that they don't invest in
| anything it doesn't mean much.
| arcticbull wrote:
| Remember folks you haven't raised anything until the check
| clears.
| privateSFacct wrote:
| Right - the term sheet is the "price sheet". The buyer still
| has to buy.
| perlgeek wrote:
| > our investment process is more rigorous than unregulated
| investors and typical VCs
|
| that would be easier to believe if the wework screw-up hadn't
| happened.
| hluska wrote:
| I'm a sample of one and this is anecdata, but in my experience
| with VCs, there is due diligence and then due diligence after
| that firm has a major disaster.
| moralestapia wrote:
| Funny that both Honor and Seismic seem like good deals from a
| quick skim. Both have established their products and markets
| clearly, pull on decent revenue, have been growing continuously,
| no scandals, no weird CEOs, nothing illegal, no "break it till
| you make it" attitude. They are both on sectors which are
| extremely profitable and whose customers' churn rate is
| relatively low.
|
| SoftBank: Nah, I think I'll pass.
| rcarrigan87 wrote:
| RE Honor - the home care industry actually has fairly tight
| margins.
| lotsofpulp wrote:
| I assume any VC getting into a business with that requires
| lots of human labor is just trying to find a bigger fool. I
| don't see what the play is if a business can't drive down
| marginal costs, which surely nursing home labor can't unless
| they've developed a machine to change bedpans.
| seemslegit wrote:
| " Seismic ia San Diego-based maker of B2B sales software that's
| raised over $180 million in VC funding, most recently at a $1
| billion valuation, from firms like General Atlantic, Jackson
| Square Ventures, Lightspeed Venture Partners, and JMI Equity.,
| "
|
| Who would be shafted if that deal went through ? Those
| valuations are just not credible anymore - it's more likely
| that SoftBank recent experience has made them shaft-averse.
| gvb wrote:
| That is a different Honor than the one stated in TFA:
|
| _Honor is a San Francisco home care company for older adults
| that 's raised over $100 million from firms like Andreessen
| Horowitz, Naspers, and Thrive Capital._
| seemslegit wrote:
| My bad, meant Seismic - corrected.
| rossdavidh wrote:
| They could be entirely legitimate, potentially profitable
| companies, and still not be worth half their current alleged
| valuation. I am not familiar with either, I'm not saying this
| is the case, just saying they could be entirely legit from one
| point of view, and still not a good investment.
| bsder wrote:
| > Both have established their products and markets clearly,
| pull on decent revenue, have been growing continuously, no
| scandals, no weird CEOs, nothing illegal, no "break it till you
| make it" attitude.
|
| VC's want _lottery tickets_ , not profitable companies. Please
| don't forget this.
| duxup wrote:
| I would hope they could find other money too if they are as you
| describe.
|
| Presumably SoftBank's decisions maybe were influenced by
| internal changes / concerns / etc.
| privateSFacct wrote:
| They really need to share more details of these term sheets that
| fell through so we can confirm they were either binding or
| signed.
|
| "Term sheets are non-binding, and even though they should signify
| a VC has conviction in investing in you and is ready to move
| towards closing, they fall through more often than most founders
| may expect." - https://techcrunch.com/2015/05/22/three-reasons-
| your-term-sh...
|
| If these were signed term sheets and the investor has done a few
| weeks of legal / financial due diligence - then yes - not common.
| If these are deal or talking point term sheets with no definitive
| agreement and little formal due diligence - then those do fall
| away more often.
| bitKong wrote:
| This looks more like a bad painting of softbank, though deals can
| go either way and at best softbank should do better at their own
| due diligence before making interest/commitment by way of term
| sheet and All tha
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