Securing Financing - Softbank Corp.

SOFTBANK CORP.

The largest information service firm in Japan in the early 1990s, Softbank Corp. made its first major investment in the U.S. Internet market in 1995, when it invested in the upstart World Wide Web searching tool Yahoo! Inc. Over the next three years, Softbank paid a mere $374 million for a 31 percent stake in what became the world's largest Internet portal. Another major Internet investment by Softbank Corp. came in 1999 when BlueLight.com was established as part of Kmart Corp.'s efforts to develop an Internet presence. In May 1998, Kmart had launched Kmart.com, which neither improved the firm's faltering image nor increased revenues. Run by an inexperienced in-house staff, the site was a far cry from what Kmart executives envisioned. Consequently, Kmart sought out Softbank to secure the funding it needed to develop a new site, which essentially operated as a separate company. Although it was concerned about Kmart's battered brand image, Softbank was impressed with the retailer's customer reach. Roughly 85 percent of the U.S. population lived within 15 minutes of a Kmart store, four million people visited a Kmart store each day, and over 70 million Kmart advertising circulars were mailed out each week. Believing Kmart's existing customer base offered a significant advantage over rival Internet service providers (ISPs), Softbank agreed to fund the floundering retailer's Internet venture. Bluelight.com—which was majority owned by Kmart and funded by Softbank, Martha Stewart Living Omnimedia, and Yahoo!— originally operated solely as an ISP. In just two years, however, BlueLight had not only grown into a leading ISP with nearly seven million subscribers; it also evolved into an online discount shopping destination. In August 2000, BlueLight secured a second round of financing-roughly $80 million—from Kmart and Softbank for expansion efforts.

Along with providing financing to startups like Yahoo! and Bluelight.com, Softbank also funded more established firms. For example, the first the firm invested in three-year-old e-commerce site-rating service Gomez Inc. in October 2000, after Gomez announced that it was postponing its upcoming IPO. Blaming weak market conditions for the delay, Gomez instead secured private financing from Softbank and other investors to continue developing new marketing and product initiatives designed to cater to both consumers and businesses. By 2001, Softbank had invested in more than 600 Internet-related companies, including Buy.com, E*Trade, Key3Media, E-Loan, Inc., Viacore, Inc., ZDNet, ADIR Technologies, Critical Path, Inc., Net2Phone, Inc., Reelplay.com, Verisign, Inc., 1-800-FLOWERS.com, Toysrus.com, and WebMD.