• SoftBank’s $100 billion Vision Fund had a big flaw that hindered it from the get-go, Menlo Ventures partner Matt Murphy told Business Insider.
  • A key part of the fund’s strategy was to deploy its capital in increments of at least $100 million, and often much more than that.
  • But few companies can make effective use of that much capital, Murphy said.
  • Startups often need time to develop, to figure out their business models and the demand for their products, and to allow potential customers to get comfortable with the idea of adopting their software or service. Massive funding doesn’t really help with any of that, he said.
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SoftBank’s $100 billion Vision Fund was designed to disrupt the venture industry, but it was hobbled by a critical flaw, said one longtime Silicon Valley investor.

A key part of the SoftBank fund’s game plan was to invest sums of at least $100 million — and often a lot more than that — into individual startups. The problem with that strategy: There are few companies that can take an injection of capital of that size and use it efficiently, said Matt Murphy, a partner with Menlo Ventures. 

To be successful, most startups have to develop at their own, often deliberate pace, he said. Companies that are pioneering new concepts — like robot pizza maker Zume or car-sharing company Getaround — need time to figure out their business models and to determine whether there’s actual demand for their product.

Enterprise software startups likewise need time to develop their businesses, Murphy said. Companies are often conservative about incorporating such software into their operations. Many don’t want to be early adopters of new applications, and will instead wait to see how others’ experience goes. 

Having access to massive amounts of cash doesn’t solve, or really help address, these developmental issues, Murphy said. A massive funding round might allow a company to hire a huge sales team or to pour millions of dollars into marketing, but it can’t really speed up the initial adoption rate of the company’s software, or accelerate the process of figuring out its product-market fit, he said.

“All those things in some ways need to take their time to organically evolve, and when you try to come in and throw a bunch of dollars at it to accelerate it, it often won’t work,” Murphy said.

SoftBank on Monday announced that the Vision Fund lost nearly $18 billion in its last fiscal year as investments in WeWork, Uber, and other startups went south. Murphy and other venture capitalists and business experts who spoke to Business Insider said they thought the fund was fundamentally flawed from the beginning.

Got a tip about SoftBank or the venture industry? Contact Troy Wolverton via email at [email protected], message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.

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