Don’t Blitzscale Against Yourself

The popular stereotype of how SoftBank Group Corp. and its $100 billion Vision Fund work goes something like this. There are a handful of startups competing in some new sector. SoftBank swoops in and funds one of them with much, much more money than it wants. The infusion of SoftBank cash gives the favored company an immediate and insurmountable competitive advantage. It can expand internationally, everywhere, while its competitors grow slowly; it can out-compete everyone else by cutting prices to win customers. With limitless money to spend it can eliminate the competition and dominate the category. (This is sometimes called “blitzscaling.”) Its rapid growth will come at the expense of huge near-term losses, but SoftBank doesn’t care. It is playing the long game, and if you own the dominant player in a big global category surely you can find a way to make it profitable.

One thing to say about this strategy is that, if this is your plan, it seems very important to pick one company per sector. Pump one company full of your money so it can cut prices, undercut the competition and gain a dominant market share, sure, great. Pump two companies full of your money and they will just keep undercutting each other down to zero, oops: