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Banker Who Brought Goldman Clout to SoftBank Starts Venture Bets

·5 min read

(Bloomberg) -- Before his abrupt departure from SoftBank Group Corp. last year, Katsunori Sago was seen as a potential successor to billionaire founder Masayoshi Son. He’s now charting his own course in startup investments.

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SoftBank’s ex-Chief Strategy Officer joins a growing cadre of Son’s former lieutenants who have caught the venture capital bug. Chief Operating Officer Marcelo Claure, who left earlier this year, is deploying billions through his family office. Rajeev Misra, who helped Son set up the initial Vision Fund, has stepped down from his role as a corporate officer and is launching his own fund.

Sago, 54, is putting his own money into Japanese startups such as ispace Inc., which is developing a moon lander for NASA‘s Commercial Lunar Payload Services project, and renewable electricity generation forecaster Sustech Inc. He also backs mortgage lender Aruhi Corp. and online real-estate brokerage platform Tsukuruba Inc., hunting for investment returns that will help fuel his long-term bets.

Before joining SoftBank, Sago was chief investment officer at Japan Post Bank Co., which then had roughly $1.4 trillion of assets under management. Prior to that, he had been tipped as a possible president of Goldman Sachs Group Inc.’s Japan unit. Now he’s bringing his connections to a country that until recently was seen as a unicorn-bereft venture backwater.

“I want to be the kind of investor who has a shared sense of purpose with entrepreneurs, like Peter Thiel,” Sago told Bloomberg News in his first media interview following his departure from SoftBank. He said he admired the PayPal Holdings Inc. co-founder’s reputation as a startup picker and his ability to attract other investors into new ventures.

Sago’s move comes during a shift in Japan’s perception of startups. In a country where the most-sought careers are at banks and city hall, Japanese startups now draw top talent. Prime Minister Fumio Kishida is also putting entrepreneurs front and center of his New Capitalism agenda, setting a five-year goal to boost the number of ventures tenfold by increasing funding from the likes of the Government Pension Investment Fund.

Executives like Sago and their personal networks are a boon to the startup community. “He’s introduced us to banks and at least ten people whose help we needed,” Sustech Chief Executive Officer Yusuke Tanno said in a phone interview. Sago helped the year-old firm craft a financing strategy that allowed it to buy its own power plant -- a key step to secure corporate clients like furniture retailer Nitori Holdings Co., Tanno said.

Sago joined SoftBank in 2018, shortly after the company launched the first Vision Fund. In the Japanese conglomerate, Sago saw the potential of a company that could hold its own against global asset management firms -- something that was missing in Japan when he was looking for counterparts big enough for Japan Post Bank. Sago jumped at a chance to work with Son, whom he called “a rare visionary.”

With his blue-chip pedigree, Sago -- who had modeled for a men’s fashion magazine when he was a student at the elite University of Tokyo -- lent a sheen of respectability to SoftBank within Japanese financial circles, where people sometimes looked down on Son, his Korean ancestry and his love of risky bets.

Sago wasn’t directly involved in the Vision Fund, SoftBank’s primary startup investment vehicle led by Misra, or the Latin America funds run by Claure. Sago, over the course of three years, did help recruit a team of Japanese financial experts to provide oversight on due diligence, with a focus on Asia -- complementing the company’s effort to reinvent itself from a telecom firm to the operator of the world’s largest technology fund.

Sago brought “a whole new perspective” and “played a crucial part in expanding SoftBank’s potential as an investment company,” Son said of Sago’s departure in a statement last year. SoftBank declined to comment further.

Sago pushed a risk-averse Japan Post Bank to broaden its pool of investments, but his measured approach may not have fit SoftBank’s, said LightStream Research analyst Mio Kato, who publishes on SmartKarma. Sago “seemed disciplined, whereas SoftBank’s investment style seems quite erratic.” When the Vision Fund first launched, SoftBank didn’t wait for investors’ money to deploy billions of dollars into startups, with Son often deciding to invest within minutes of meeting founders.

Sago left while SoftBank was still riding high on its stakes in some of the world’s most prominent startups. But the more time Sago spent at SoftBank, speaking with Son and other entrepreneurs who were passionate about their businesses, the more he wanted to build something of his own, or back founders he believed in.

“There were times I disagreed with Son on strategy or on investment methods, but I wouldn’t leave because of that,” he said.

In the year since Sago struck out on his own, a rout in tech valuations forced SoftBank to log a record $23 billion net loss in the quarter ended June. SoftBank is now planning to cut at least 20% of its Vision Fund staff. Echoing Son’s warnings at SoftBank’s earnings release last month, Sago warned that market turbulence could continue.

Many startup founders who are hoping to go public are now struggling to raise funds, reluctant to accept the new reality of lower valuations. With rising interest rates and fears of recession, the market could be headed for a major collapse in the second half of next year to 2024, said Sago, who has lowered the number of companies in his portfolio from about 30 firms last year to 18 firms now.

Shares of Tsukuruba fell 9.8% on Friday in their biggest drop since February. Aruhi’s stock price jumped 6.8%, extending its gains after SBI Holdings announced earlier this week a tender offer for a majority stake in the mortgage firm.

“The market has not yet fully priced in valuation falls of unlisted companies,” he said.

(Updates to add Tsukuruba’s share price move in 17th paragraph)

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