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Softbank bankrolls way to top

Softbank is quietly and in some cases, not so quietly, building a portfolio of investments intended to guarantee the company a role as an Internet power broker.

Masayoshi Son is determined to own a piece of the Web. In fact, he already does.

Son, the 39-year-old CEO and president of Japan-based Softbank Holdings, has invested in 24 Internet start-ups to date, including an almost 32 percent ownership of search engine Yahoo and a 10 percent stake in CyberCash, which specializes in electronic money applications.

Softbank is quietly and in some cases, not so quietly, building a portfolio of Internet investments intended to guarantee the company a role of Internet power broker. The strategy is based on three firm rules: invest early and often; don't invest in two companies that compete with each other; and look for synergies between different investments. Then sit back and wait for one or more to become a hit.

Softbank's interests aren't confined to the Net, of course. The company this week announced a $1.5 billion deal to buy 80 percent of PC memory hardware firm Kingston Technology as part of its plan to "provide infrastructure services and capabilities to the digital information industry on a worldwide basis," according to the corporate mission statement.

Ziff-Davis Publishing became Softbank's most visible investment in November 1995, when Son paid $2.1 billion for the publishing firm. The company also made headlines when it bought the Comdex trade shows for $800 million in May 1995. But if not the most well-known, its list of Internet investments is the company's longest in any single technology sector.

Softbank's raft of investments includes some of the best-known companies on the Web: news broadcaster PointCast, Web traffic measurement service I/Pro, stock brokerage E*Trade (which went public this week), and Inquiry.com, a free service for software developers to track products, techniques and emerging technologies. (See table below)

Beyond the blue chips, Softbank also is spending money on online gaming, Web back-end technology firms, companies doing Web entertainment content, Internet software tools, and Web services.

In the past, Son's investment strategy has always started out with one fundamental question: "Can we be number one in the segment?" said Ron Fisher, Softbank's U.S.-based vice-chairman.

But the Internet, because it is both embryonic and booming, has required a somewhat different approach, Fisher said. "The way to participate in the long term of the Internet is to invest very early and very broadly into companies that you believe will provide long-term infrastructure," he explained. To that end, Softbank has sprinkled millions of dollars in minority investments in Internet firms through its venture capital arm, funded with about $225 million from non-U.S. institutional investors.

"That way we can assure that, as a market segment emerges, we're almost sure have some winners," Fisher said.

In its earliest Internet investments, Softbank looked for synergies. In March, Son had ad-oriented Ziff buy into Interactive Marketing, an online advertising group that is one of the largest networks selling ads for Web sites today. Son has since bought the rest of the company and renamed it Softbank Interactive.

Other venture capitalists see patterns in Softbank's choice of investments.

"I think Son is interested in the triangle that embraces computing, information, and publishing," said Michael Moritz of Sequoia Capital, which sealed Softbank's $106 million investment in Yahoo. "Anything within that triangular boundary is of interest. They think of it as being the Softbank Triangle."

Moritz added that partnering is another key element in Softbank's philosophy. "They're interested in building a very large company and recognize that it's quicker to do in partnership with others that blend with the direction they're heading in," he added.

The partnering approach is how Softbank, which set up its U.S. investment presence only last September, has managed to do 25 deals in less than a year.

Softbank, notes venture capitalist Tim Draper, is a strategic investor, hoping to build a portfolio of companies in complementary businesses, not just make money. "They can help with strategic relations," Draper, managing director of Draper Fisher Associates, said approvingly. "They want to influence our industry."

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