"SoftBank is in a new, different period"

Yossi Cohen  credit: Shlomi Yosef
Yossi Cohen credit: Shlomi Yosef

Mossad chief turned SoftBank exec Yossi Cohen talks to "Globes" about investment strategy, Saudi Arabia, and his political outlook.

For over two years now, former Mossad director Yossi Cohen, has headed SoftBank's operations in Israel. SoftBank, one of the largest investment funds in the world, has been associated more than once with scandals -- such as its failed investment in WeWork and providing an unbelievable compensation package to WeWork founder Adam Neumann -- but also with major successes, such as it scored last week with the blockbuster IPO of chip company Arm, which is controlled by SoftBank.

SoftBank is viewed as a fund unafraid to go far in order to invest in companies, putting in huge sums, and hiring senior executives straight from the top of the pyramid, including CEOs of venture capital funds, senior investment bankers from huge firms, as well as the services of Israel’s number one spymaster. Softbank is a strange animal in the high-tech investment industry: it is run in a highly centralized manner, under the management of founder Masayoshi Son, and its performance is published every quarter, exposing its successes and failures to lively public debate, and making it a subject of controversy.

Cohen joined Softbank in July 2021, when technology investment in Israel and around the world was riding high. In the weeks preceding the announcement that he would be joining the firm, Monday.com and ironSource went public, and that year the Israeli tech industry raised a record $27 billion, a peak that has not been equaled since. Four months later, the Nasdaq index was still rising. Then, a chill wind from the US Federal Reserve and rumors of an imminent interest rate hike heralded the beginning of the downturn in tech stocks. Since then, for the past year and a half, Cohen has been operating in a bear market.

Because of the continued stock market decline of 2022, and the decline in valuations of privately held high-tech companies, SoftBank’s Vision Fund has accrued an approximately $50 billion loss over the past two years. However, the recovery in technology stocks since the beginning of this year and the huge Arm IPO have turned things around. Estimates now are that the fund will return to profitability. Softbank sold approximately $4.9 billion worth of shares in the IPO, and still owns 90% of the company, which is currently traded at a $56 billion market cap. According to "The Financial Times", Softbank is preparing for an investment boom in artificial intelligence for drug development, and is considering investment in OpenAI and Graphcore.

"The market experienced 18 months of confusion -- or as Masayoshi Son said, 'We switched from attack to defense,'" Yossi Cohen tells "Globes". "The idea was that you don't launch ships into stormy seas, but now we’re in a completely opposite phase. As far as we’re concerned, Softbank is in a new, different period. Happily, since the 1990s the fund has had no liquidity problems. There are always good investments, and now the fund has a new investment strategy, and plenty of capital -- $160 billion under management in a fund called Vision 2. Meaning, we have something to work with."

From undercover to high-tech

Many an eyebrow was raised when Cohen joined the fund. He landed one of the most influential positions in Israeli high-tech without previous experience in managing investments or venture capital, and after long service at the Mossad, including a five-year stint as its head. It was thought that Cohen would help Masayoshi Son raise capital in places such as Saudi Arabia and the United Arab Emirates, and would help open up the market for companies in the Middle East. Cyber company Cato Networks, in which Softbank invested in last week, is already active in the United Arab Emirates, and recently even claimed to have expanded its cybersecurity network to Saudi Arabia.

Until the investment in Cato Networks, Cohen had made only two investments. The first was an $400 million investment in cybersecurity company Claroty and in its merger with of Israeli company Medigate. The second was a small, $5 million investment in AI pharma startup Quris. This may not have been to Cohen’s detriment; many companies had been overvalued, and funds that did invest were left with companies whose values had shrunk. "For Softbank in particular, and other funds in general, we’ve seen very little investment activity recently," says Cohen. "The truth is that more could have been done, but once a fund goes into 'defense mode', it’s very hard to get out of it."

You came to the fund at a peak and went straight into a low period.

"I saw a kind of hype. In the discussion about the investment in Claroty, when Masayoshi asked me how much they wanted and I told him $150 million, he replied: 'Give them $200 (million)’. Now he’s not involved in that. He works a little more from a distance, but, in my opinion, not only will we see more investments by the fund itself, but many more. Just last week, the top representatives of the fund in the US were here, including Brett Rochkind, a veteran investor who has worked in large funds such as General Atlantic. We’re going to 'process' a lot of companies."

This past week Cato Networks - owned by Shlomo Kramer, who was among the founders of Check Point and Imperva - announced it had raised $238 million dollars at a $3.1 billion valuation. $30 million came from Softbank. The investment was led by Cohen, who by virtue of his experience, knows the cyber industry well. "When we set up Softbank Israel, we thought of some 'major leaguers' that we wanted to reach," says Cohen. "A number of global market players operate from here, and Shlomo Kramer is one of them. Working with Shlomo is the reason why SoftBank had to make this investment. Although we wanted to invest more, we did what we could, with the understanding that we might invest more down the road."

Nonetheless, Cohen does not hide the complexity of the process that ultimately led to the major investment. "They were totally unforgiving towards us. They checked whether we were worthy of investing in the asset in which they had invested their whole lives."

Senior execs abandon the roller coaster

Cohen joined SoftBank two years ago under its British branch, managed by Yanni Pipilis, and began working on investments in Europe and the Middle East. With the reports of losses, write-downs of value, and a halt in investments, many managers left Softbank, including Pipilis, who, with another partner named Munish Varma, established a new fund with the support of investors from the United Arab Emirates.

Cohen, along with the Israeli team that includes Amit Lubovsky, were left by themselves, and decided to join SoftBank's US operations. "These changes happened simultaneously unconnected to Softbank Israel. After all, the world experienced a difficult economic period. The stock markets fell a bit at the time, and SoftBank's management looked for their futures elsewhere. In consultation with Yanni and (Vision Fund CEO) Rajeev Misra, I concluded that it was better for us to change our strategy and work under Softbank America, for several reasons. Among other things, Masa (Masayoshi Son) himself said that 80% of the investments would be in the US, and I annexed Israel to that as well. In any case, most Israeli companies that want to grow are looking for connections in the American market, which is the most important one for entrepreneurs and investors."

What have you learned from this roller coaster ride you’ve been on since joining Softbank?

"I was exposed to the fascinating way in which Israeli high-tech behaves. I knew it from a different angle, as a partner and a customer, but not as someone exposed to its commercial angle. I saw rising, unrealistic valuations for companies, and investment funds fully cooperating with that. Suddenly, all that changed a bit, and there’s now more realism in the market. And yet, I think that what we see in Israeli high-tech shatters the myth that we supposedly lived in a bubble - it’s not true. There were companies that underwent streamlining and rightfully so, and there were companies whose business model didn’t live up to the crazy valuations and the hype, and they disappeared from the market.

"Now, as they say, you can see who’s swimming naked and who has protected themselves. We’ve been introduced to many companies where, when you knock on their door, you can tell they’ve been frugal over the last seven years, built a proper company structure with a good CFO and CEO, who were somewhat unsettled by the situation, and then implemented very mature internal processes. Today, many of them tell us: 'We have enough money in reserve.'"

"I had to explain the situation in Israel to management"

SoftBank has been criticized in the past year for leading aggressive streamlining of its portfolio companies, after previously partnering in huge high value investments -- perhaps too high. Some portfolio companies, such as Cybereason, AnyVision, Stream Elements and Rapid API, had to undergo severe cutbacks. In some cases, as with Cybereason and Rapid API, the CEO was replaced, and stocks fell.

The investment funds were also at the party.

"Without doubt, they cooperated. After all, the companies did the pricing with us. High-tech is a product, it is like many other assets that are very volatile, globally. I see it the world over, in a geopolitical economy that is very strongly connected, not necessarily to trends but to powerful market forces, such as rising stock markets all over the world."

Entrepreneurs defrauded investors, as in several cases in Israel.

"It's very bad. We didn't make concessions to anyone [in the due diligence process prior to investment, A.G.]. I don't know what happened there, but part of the relationship between an investor and a company owner is a question of decency."

Do you see a problematic investment climate in Israel?

"In a way that is not fundamentally different from the past, I had to explain the situation in Israel to Softbank senior management. I did this twice: once as part of the strategic presentation for the entire company, I told everyone how the global situation appeared to me: the situation with Russia, Ukraine, the US, China, Taiwan and the Middle East. Then I had to explain whether this thing (the judicial reform legislation, A.G.) affected the capital market, future investments, and so on. People gather economic intelligence all the time and what they see, all in all, is a picture of stability. I don't see the Israeli market collapsing economically. I see that we’re experiencing many difficulties internally. But the discussion is not whether we are for or against the reform."

But what do you hear from investors? Shlomo Kramer, in whom you have just invested, tells us that foreign investors are uneasy about investing in Israel right now.

"Maybe, at least because of the atmosphere, but not necessarily because of the reality. After all, what happens to an investor who brings a dollar here from abroad? Nothing different from what has happened to them up to now. They aren’t paying more tax, they aren’t subject to less regulation, and I see investments happening. It’s very difficult to gauge the phenomenon of judicial reform and its effects in relation to the general global trend. You’re asking, are we different from the stream of investment going to the UK? It's hard to say.

"I hope this whole thing will stop. I think that we need to stop, join forces, come into line, and work together to resolve the dispute between us by agreement. I have no doubt that this will make us stronger democratically and economically, the way it has always been. When we, as a country, stand strong within ourselves and project strength, the State of Israel is much better off."

"If I'm going to enter politics - I’ll let you know"

Cohen has never denied reports about him entering politics. Even if he still does harbor such intentions, the time spent in SoftBank’s employ enables him to accumulate wealth in a way that was never possible for him as a civil servant, and to prepare himself financially for a return to serving the country.

You don’t deny that you are considering running for office. Doesn't it bother you to invest in a figurehead of the protest like Shlomo Kramer, who is among the leaders on the high-tech side of the ‘struggle’- to use the terminology of the electoral base you might target?

"I don't have a base. I'm not in politics and I'm not a politician. I never have been, and I remind you that although I served the State of Israel and wasn't in the financial world for 42 straight years, I still haven't decided whether to enter politics. My base is the national base. I'm sure of one thing: if it does happen, and someday I’ll give notice if it’s happening, our understandings among ourselves should be far more broad-based than when the liberals on the left or the liberals on the right meet. At least 70% of us agree on 80% of the issues -- and that is the base. This is the right national message that we must broadcast to prevent this unbecoming tribalism and fragmentation into camps, which I don't think anyone from either side likes."

The compromise needed for a Saudi agreement

In recent months, there has been much talk about normalization between Israel and Saudi Arabia. On September 20, at their meeting on the sidelines of the UN General Assembly, Prime Minister Benjamin Netanyahu and US President Joe Biden did not hide their expectation that the process with Riyadh would bear fruit soon. Saudi Crown Prince Mohammed bin Salman also addressed the issue openly in an interview with Fox News.

In your opinion, will the emerging agreement with Saudi Arabia lead to full normalization with Israel?

"Are we in a better situation with the Saudis than we were five years ago?" Cohen answers with his own question. "The answer is yes. I don’t deny that there were efforts; after all, these things don't suddenly happen spontaneously. In the previous organization where I worked, we invested a great deal of effort to show the leaders what Israel really is. Now, the case of Saudi Arabia brings us to a situation where every leader in the Middle East has to take a variety of considerations into account before coming into full contact with us. It took King Hussein 40 plus years to come out of darkness into the light - but, in the end, why did it take so long?"

Do you think it is right to give the Saudis a nuclear reactor in exchange for an agreement?

"We are not talking about a reactor, but about centrifugal enrichment capability. I estimate and believe that the US and the State of Israel, which will work closely with it on this issue, will not abandon our security to a Saudi military nuke, heaven forbid. In the civilian nuclear field, there are many countries that are working on it, but I don’t know all the details of the agreement.

"If we look at the maritime border agreement with Lebanon, for example, it is neither good nor bad - it is simply a compromise. As in everything, the question is what you get versus what you give. I remind you that we relinquished oil fields and returned the entire Sinai, and today we don’t go diving in Israeli Nueiba, we travel to Taba in Egypt. In order to reach compromises and lead to peace in the Middle East, sometimes we must give up on the hundred percent."

According to Cohen, the agreement with Saudi Arabia also embodies an opportunity for investment. "There are a few countries that are not exposed to the high volatility of the stock markets, and where the economic impact come not from rises and falls on Nasdaq or any other stock exchange, but from other financing sources. Here, I see more and more interest, worldwide, in the Middle East, and more and more countries in the region are turning their attention to the State of Israel. If the right thing happens, and a full peace agreement or full normalization is signed with Saudi Arabia, we will move up another level, and it will only do good."

The Saudis began to invest openly in Israel through the fund headed by Donald Trump's son-in-law, Jared Kushner, and recently even examined investing in The Phoenix Holdings, and invested in the Shlomo Group. How much of a breakthrough is this?"

"Actually, there is a fund that did this previously, Liberty Capital of the former US Secretary of the Treasury, Steven Mnuchin. It relies on exactly the same sources of finance, and has already invested in Israeli companies (Cybereason and Zimperium , A.G.). As the world sees it, Saudi money is legitimate. But the fact that it is coming to Israel for the first time is a blessing -- contrary to claims that the Saudis are coming to buy up the country, turn it inside-out, and take over the institutions here. As far as I know, they have no such intentions or inclinations."

Cohen goes back to the Cato Networks investment, concluding the interview with a comment about Israel’s cybersecurity sector: "In the State of Israel, we have huge advantages in cyber that are large on any global scale, both in defensive cyber and offensive cyber, with at least two companies that are global leaders and have world-class capabilities. Not only are there companies here, but also the concept and understanding about how to create a cyber policy that will protect us across the entire spectrum."

Published by Globes, Israel business news - en.globes.co.il - on September 27, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Yossi Cohen  credit: Shlomi Yosef
Yossi Cohen credit: Shlomi Yosef
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