Technology is quickly changing the world, and owners of the companies doing the changing are reaping big rewards. New businesses are often privately held, though, excluding all but a select few investors. For those who want in on some of the hottest tech names today, there is a back way in by investing in Japan's SoftBank (NASDAQOTH: SFTBF).
Requirements to invest in private equity
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Private equity refers to the practice of buying and funding privately owned companies -- those that do not have shares listed on a stock exchange that investors can purchase. In the technology industry, some of the fastest growing businesses today are privately held, funding their expansion with private equity from big investors in exchange for an equity stake.
These sometimes-lucrative deals are off-limits to most investors, though. Because of the extra risks that often accompany private companies -- like requirements to not sell for long time periods, limited parties to sell a stake to, and sometimes-unprofitable operations -- the Securities and Exchange Commission has put stringent requirements on who can participate. You have to be an accredited investor, satisfying at least one of the following: a net worth of $1 million, excluding the value of a primary residence, or income for at least two years of a minimum $200,000 if single and $300,000 combined if married.
Those definitions exclude most, but there is another way to get access to some of today's fastest-growing private tech: SoftBank, which operates the largest technology investment fund ever.
What's under the hood
SoftBank is one of Japan's largest telecom operators. The company has also diversified into other businesses and owns stakes in Sprint (NYSE: S), operates Yahoo! Japan, and owns semiconductor maker ARM Holdings. SoftBank is also the operator of the Vision Fund, which has also received investments from the likes of Apple (NASDAQ: AAPL), Qualcomm (NASDAQ: QCOM), and sovereign wealth from the United Arab Emirates.
Vision Fund raised $100 billion and has already taken stakes in companies spanning the Internet of Things, artificial intelligence, mobile apps, financial technology, and biotechnology. Here is a breakdown of some of the biggest deals:
Vision Fund's tech holdings are diverse, and with the exception of NVIDIA, all privately held. For owners of SoftBank's stock, you get ownership of those businesses by way of the telecom's control over the fund. The company earns big fees from Vision Fund, especially if those investments keep growing.
Some caution is needed, though. Private equity is not for the faint of heart, as these companies can be volatile. Since they are not publicly traded, private deals can change the valuations very quickly (like what just happened with Uber) and dilute existing shareholder values. SoftBank is also mulling over spinning off a portion of its telecom business to investors, sharpening its focus as an investor in technology and start-ups. Investors thinking about buying SoftBank should be aware that what they are buying is not the same thing as a typical publicly traded company, but more like a private equity fund.
However, if high-risk, potentially big-reward private equity is what you're after, SoftBank could be your ticket.
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