Softbank Launches Latin American Fund

The competition for Latin American Internet deals-fierce in recent months-is about to get even hotter with the entry into the market of Japanese giant Softbank Corp. Through its venture capital subsidiary, Softbank Technology Ventures, the company has allocated $100 million for Softbank Latin American Ventures, its new fund.

According to International Data Corp. (IDC), Internet use in Latin America is expected to expand rapidly over the next three years, to 24.3 million in 2003 from 8.5 million users today. Additionally, IDC has predicted that e-commerce will increase twenty-fold, to $8 billion by 2003 from $460 million in 1999.

Jan Boyer, who has been appointed managing general partner and chief executive of the new fund, said Softbank plans to leverage this opportunity by focusing on three areas: facilitating Latin American market entry for Softbank-affiliated Internet companies; providing funding and guidance to local Internet entrepreneurs; and backing “promising” Internet companies focused on the region.

Boyer formerly headed BankBoston Corp.’s (now Fleet Boston Financial) private equity operations in Latin America, where he completed the firm’s first Internet investment in the region.

Boyer said that facilitating market entry for Softbank-affiliated Internet companies, is “one of the things we do very well,” offering Yahoo’s entry in Japan as an example. Softbank is the majority shareholder of Yahoo.

Boyer said the ability to leverage its portfolio gives Softbank a head start in competing with both start-ups and brand names, like, that Latin Americans already use. Additionally, Softbank brings its international experience and connections to the table, he said.

“We have a portfolio of 120 companies worldwide,” Boyer said. “We’re the largest shareholder of Yahoo, that’s worth $30 billion. We consider [the $100 million allocation] a starting point. We’re going to dedicate whatever resources are needed to the opportunities we see.”

There is also potential for additional participation by strategic limited partners, he added.

Boyer said Softbank Latin American will target all of Latin America and Miami.

“Apart from the pun that it’s a part of Latin America, from an Internet viewpoint, it really is. People are calling it Silicon Beach’,” Boyer said.

Softbank is putting together a staff with offices in Buenos Aires, Sao Paulo, Mexico City and Miami.

Although the fund’s primary target is the Internet, Softbank will look at other technologies, such as cable, data communications and telecommunications. The firm will consider investing a minimum of $500,000, and as much as $20 million per deal.

“Softbank does early stage investing in very small amounts, but also can do large amounts,” Boyer said.

Hype Exceeds Reality

However, despite all the hype regarding Internet investing in Latin America, and its accelerating pace, investment amounts remain a fraction of what they are in the U.S. In the U.S., venture capitalists have injected $30 billion in Internet-related investments. In Europe, that number is $10 billion. But $10 billion represents the entire private equity market in Latin America in all sectors.

Boyer acknowledged there are still several obstacles in Internet investing in Latin America. “There’s a question of the cost of access and devices. This is clearly a challenge. Some governments are proactive. But [we] need more broadband options regionally and nationally. [Also], the industry and participants need to fund secure online payment options. [And] ISP access and logistics need improving. It’s one thing is to create any commerce platform, another to deliver the goods.

“Our view is that the participants have to work constructively and proactively to remove those barriers,” he continued. “We have a history [with this].”

Softbank joined onto a $1.3 billion three-way joint venture in Asia last fall with Microsoft and Global Crossing.

The three firms established a new company, Asia Global Crossing, in order to provide network-based telecommunications services to businesses and consumers throughout Asia in upcoming years through broadband capability, which they are currently constructing. The importance of high-speed broadband access to Internet growth was underscored recently with the America Online-Time Warner merger: Time Warner owns the second largest cable network after AT&T, and AOL needed access to this distribution to protect its future.

Softbank’s existing portfolio includes a 27% stake in E-Trade, 28% of Yahoo and 85% of ZDNet. In all, it has invested $1.7 billion in its 120 Internet companies worldwide. Softbank’s Japanese interests include distribution, publishing, Internet media platforms and e-commerce.

In December, Softbank formed Softbank Holdings Korea, a joint venture with Naray Telecom that will develop as many as 100 Internet companies in Korea over the next two years. Softbank has also recently established @viso, a joint venture with Vivendi, in order to develop Internet companies in Continental Europe. And eVentures, a joint venture with News Corp. that focuses on the U.K., as well as eVentures Australia, eVentures New Zealand and eVentures India.

“Softbank now has a presence on the Internet in Asia, the U.S. and Europe,” said Boyer. “South America was the logical next step.”