Dear Reader,
Before we get to our insights today, I want to remind you one last time that access to my new research service, Early Stage Trader, closes at midnight ET. This will be the last chance to access the service with our most generous offer as well as my $151K one-year guarantee.
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That’s the problem I set out to solve five years ago. How can we make early stage investing available to everybody? And better yet, how can we do it in a simple way… without needing to sign contracts to participate or wait 8-10 years for an exit? How can we bring life-changing deals to our subscribers?
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Okay, let’s talk tech…
Elon Musk’s big VC raise…
One of Elon Musk’s companies, The Boring Company, just raised a massive $120 million Series B venture capital (VC) round. This is the first external financing round for The Boring Company, as Musk has funded it since its founding. Musk started the company last year and invested more than $100 million of his own money in this venture.
The Boring Company specializes in building underground transportation tunnels.
Musk founded the company because he was frustrated with the traffic in Los Angeles… and with how long road construction took. He figured he could invent a massive bore to dig transport tunnels beneath the city. And he believed that he could build one that was better than anything else that existed on the market.
And that is exactly what he and his team have done.
Musk envisions two different means of transportation through these tunnels. The first is minibuses to shuttle pedestrians around quickly through these subterranean tunnels.
The second is a platform that will shuttle entire vehicles. You just drive your car onto the platform… Then it locks the car down and moves at high speeds through the tunnels.
A Car Shuttle Platform
Source: The Boring Company
The Boring Company has already dug a test track beneath L.A. to show how well it works. And back in May, the company won a $48.7 million contract to build a tunnel beneath the Las Vegas Convention Center. The tunnel will enable attendees to quickly get from one side of the two-mile complex to the other.
But these are just small “proof-of-concept” projects. To tackle larger projects, The Boring Company needed more capital. That’s what the VC raise was all about.
There have been discussions about connecting Washington, D.C., to Baltimore via an underground tunnel system. That’s a job the company would love to take on… but it wasn’t going to win the contract with a small balance sheet. The cities would need to see plenty of cash on the books to be assured of the company’s financial ability to take on a major project like that.
So the fact that Musk was able to raise such a large Series B, valuing the company at nearly $1 billion, tells us that the likelihood of The Boring Company winning some major projects is quite high. After all, the VCs who invested had access to inside information concerning The Boring Company’s business prospects… And they obviously liked what they saw.
Again, they invested $120M at an $800 million pre-money valuation for a company that has no revenues. The post-money valuation is now at $920 million, so clearly there is an expectation for large business contracts.
This is exciting stuff. Ultimately, this vision represents the reworking of what the next generation of transportation looks like: transportation tunnels underground, Hyperloop technology (vacuum-like tubes shuttling “pods” at superfast speeds above ground), self-driving cars and trucks, and even passenger-carrying, vertical-takeoff-and-landing self-flying “drones” to shuttle around people in dense urban areas.
VC funding is about to accelerate artificial intelligence and machine learning…
SoftBank Vision Fund is a $100 billion VC fund dedicated to investing in tech startups. The fund was founded in 2016 by SoftBank CEO Masayoshi Son. His stated purpose was to invest about $50 billion per year in fast-growing tech companies.
And the news is out that Son just kicked it up a notch… He has decided to create a second fund.
SoftBank Vision Fund 2.0 will be geared toward accelerating artificial intelligence and machine learning technology. And it will be even bigger than the first fund. Son is planning to raise $108 billion for the new fund.
To put this in perspective, total VC investment last year was $131 billion. That’s all VC investment combined. And if you look at 2017, total VC investment was $83 billion.
That means SoftBank’s new fund will deploy almost as much capital as the total VC investment in the U.S. last year. And it will be 30% larger than the total VC investment from 2017.
That makes for a massive fund.
And some big players are acting as limited partners in Son’s second fund. Apple is investing. So is Goldman Sachs. Even Kazakhstan’s sovereign wealth fund is investing.
SoftBank’s ability to both invest and raise so much additional capital comes to many as a surprise. Many in Silicon Valley and the press criticized SoftBank last year for taking in more than 50% of its capital from Saudi Arabia and not returning it after the news came out about the journalist who was murdered in the Saudi Arabia embassy. The press claimed that SoftBank would be hard-pressed to convince anyone to accept its money because it didn’t “take a stand” against Saudi Arabia.
But it turns out that money talks. SoftBank had no trouble investing the remaining money in the original fund, nor did it have any trouble raising an even larger second fund.
I know that it is hard to comprehend the scale of this level of investment. Deploying this amount of capital, $208 billion or more in total, into some of the most exciting developments in technology simply means that the pace of technological innovation will accelerate.
The best ideas in the world of technology will continue to get funded. The most successful ventures will either get acquired or go public. And the pipeline of technology-focused IPOs will continue to be strong. This means incredible products and services for consumers and great investment opportunities for investors and traders.
Microsoft makes another PR play…
Last week, we talked about how Microsoft’s “investment” in OpenAI was just a big public relations (PR) stunt. It is investing money only to have OpenAI turn around and pay it back for Azure Cloud Services.
Well, Microsoft is at it again…
Returning to SoftBank’s Vision Fund 2.0, Microsoft plans to invest as well. But there is a caveat…
In exchange for the investment, part of the deal would have SoftBank list Microsoft’s web services business, Azure, as its recommended platform to its portfolio companies in the Vision Fund 2.0.
So here we are again… Microsoft is trying to “buy” business in its dire attempt to compete with the far superior cloud services offered by Amazon Web Services and Google Cloud. It is trying to make Azure appear to be a successful cloud services business.
But, in fact, we don’t even know how much money Azure’s web services business actually makes. That’s because Microsoft has gone to great lengths to obscure the actual numbers. In its business, it also includes Office 365 software licensing revenue… LinkedIn revenue… GitHub revenue… Bing search engine revenue, Minecraft revenue… and even Xbox revenue. And, of course, none of those things have to do with Azure Cloud Services.
Microsoft has nearly $134 billion in cash on the books… And the company can’t think of anything better to do than invest in a VC fund that won’t deliver returns for 8-10 years. That’s ridiculous.
Best-in-class corporate responsibility is simple. If a corporation has great ideas to create and invent new products and services that will grow its business, it should invest the money. If it can’t think of any good ideas, it should return the capital to shareholders through dividends or perhaps share buybacks. That’s a basic fiduciary responsibility.
Well, Microsoft has proven itself to be a poor steward of capital. It consistently overpays for assets like Skype, Nokia (the mobile phones division), LinkedIn, GitHub, and Minecraft, which have nothing to do with its core business. And Azure is widely thought of as one of the worst cloud computing platforms to work on… right up there with IBM.
As I wrote last week, Microsoft is living off its monopoly with Windows and Office. It’s not going away any time soon. And to be clear, I’m not saying that Microsoft is going to be a bad investment. But the company is about as far away from the bleeding edge as a tech company can be. It fails to innovate year after year, and it deploys capital in the worst ways.
Microsoft might be the world’s largest publicly traded company. And the mainstream financial press might tell you it’s a cloud computing powerhouse. But here’s my advice: If you’re looking to invest in the real leaders in cloud-based services, Amazon is the best in the world and Google would be my second choice.
And I’ll keep holding my breath in hopes that Microsoft will actually do something interesting with that $134 billion cash hoard…
Regards,
Jeff Brown
Editor, The Bleeding Edge