SoftBank & Alibaba: The $20 Million Bet That Built a $200 Billion Empire
How Masayoshi Son’s instinctive deal with Jack Ma became SoftBank’s defining investment—and a blessing, a curse, and a benchmark Masa would chase for decades.
The Alibaba story begins with Masa meeting Jack Ma during a "speed-dating" session for Chinese entrepreneurs arranged by SoftBank's new venture capital fund in China on October 31, 1999, in Beijing. Ma, described as an elfin figure, stood out because he spoke the best English. He presented his business, Alibaba, as an electronic Yellow Pages matching buyers and sellers, drawing an allusion to the Arabian Nights story. At the time, Alibaba was only about six months old with minimal revenues from sponsorship deals on a clunky website, but it was attracting over a thousand new registered users a day.
Masa immediately grasped the commercial opportunity in the mass market and was drawn to Ma's "animal smell" as a fellow underdog. He offered $40 million on the spot for a 49 percent equity stake. Ma turned down the offer, stating that Alibaba was "just a baby" and did not need that amount of cash, instead suggesting he would consider $20 million. Turning down Masa, who by 1999 was seen as a major tech investor, took "guts—or epic foolishness". SoftBank's venture capital partners, including Hong Lu, were not convinced by Ma, who appeared unprepared and couldn't say when his business would be profitable. However, Masa was not worried about profitability, believing that growth was all that mattered. Masa ended up overruling his colleagues, seeing Ma as a visionary like himself, despite objections that Ma was not an engineer or a great product guy.
Ma and Joe Tsai later came to SoftBank headquarters after Masa, in a "buoyant mood" following Yahoo! Japan seeing off eBay, called Ma back from the airport when he heard Ma was in town. In that meeting, Masa was curt and reiterated his initial offer of $40 million for 49 percent. Disbelieving this offer (which was eight times the earlier Goldman money and would make SoftBank a controlling shareholder), Tsai spoke up, which was against protocol, and spun a story about having a board that wouldn't accept the terms. Masa used a calculator and revised the offer to $20 million for 40 percent, but the Alibaba executives refused. After repeated negotiations, the two sides settled on a deal: $20 million for a 30 percent equity stake, which valued the business with minimal revenues and no profits at over $60 million. This was considered an "inspired bet" that Alibaba would become the first Chinese internet company to be a global brand and turned out to be the most important investment in Masa's entire career. The deal closed in February 2000.
At this time, eBay was dominating China's e-commerce market with a 90 percent share, possessing brand recognition, deep pockets, and a local partner. Alibaba's existing model relied on online catalogs for information but required offline negotiation, unlike eBay's "closed loop" online purchase process. Ma argued against distinguishing between consumer and business users, stating their behavior was similar, and crucially, highlighted that Alibaba had the backing of SoftBank, which had recently seen off eBay in Japan. Ma's argument carried the day, leading the Alibaba team to develop a new venture named Taobao, meaning "seeking treasure".
Taobao was launched on May 10, 2003. Initially, its connection to Alibaba or SoftBank was hidden, following Sun Tzu's advice to "Let your plans be dark and impenetrable as the night". Two months later, on July 10, Alibaba announced that Taobao was part of the family. Joe Tsai devised a structure where SoftBank held 50 percent of Taobao as a joint venture. This arrangement allowed Alibaba to avoid consolidating Taobao's loss-making operations, making its own financials appear healthier. Masa agreed for SoftBank to take 50 percent of the losses on its balance sheet and was happy to finance Taobao's startup costs, increasing his total investment in the "Alibaba empire" from $20 million to $100 million by 2005. Masa also contributed insights, delivering an ambitious metric for Taobao: 10x as many product listings as eBay. Tsai suggested a non-legal personal letter from Jack Ma pledging their best effort to meet this target, which Masa loved, calling it the "Man's pride" letter, prioritizing trust over legalese. Masa's long-term faith in Alibaba produced fabulous rewards.
Meanwhile, Goldman Sachs, an early investor in Alibaba, chose to exit before SoftBank increased its investment in Taobao. Goldman had paid $3.3 million for a 33 percent stake in 1999 and sold it for more than seven times that amount ($23 million) five years later, which seemed like a respectable return at the time. However, ten years later, when Alibaba completed its IPO, that same stake would have been worth $12.5 billion, making it "one of the most costly lost opportunities ever".
In the spring of 2004, Taobao was described as "eating eBay's lunch" in China's online auction business. Sensing the threat, eBay tried advertising strategies and approached Ma and Tsai with a $150 million buyout bid. Tsai considered their counter-offer range of $600 million to $900 million "stupid enough". eBay walked away but made subsequent approaches. In May 2005, Masa saw a chance to use his position as a major shareholder in both Yahoo! and Alibaba. He devised a deal to create "The Golden Triangle" between Alibaba, SoftBank, and Yahoo!, effectively relegating the Americans to the sidelines. In this complex deal, Yahoo! invested $1 billion in Alibaba shares and handed over Yahoo! China, resulting in Yahoo! having a 40 percent economic interest in Alibaba. SoftBank's stake in Taobao was integrated into Alibaba in exchange for cash and shares, leaving SoftBank with $360 million in cash and a 30 percent economic stake in Alibaba. Joe Tsai remarked that Masa "made out like a bandit," while Jerry Yang famously told Masa, "I feel like your ATM machine". However, the deal was not entirely one-sided, as Ma and Tsai retained full control of Taobao and pursued ambitions for Alipay. Masa understood Ma's ambition and saw it as a brilliant long-term bet.
In 2005, it was arguable that SoftBank made Alibaba, but ten years later, Alibaba had flipped the relationship, becoming China's most important and dynamic company, worth around $200 billion by late 2020, and delivering an "astronomical return" for SoftBank. Jerry Yang reflected that "In many ways, Alibaba made SoftBank". The Alibaba investment was disproportionately the basis for Masa's claimed high internal rate of return (IRR), and by 2020, Alibaba accounted for half of SoftBank Group's stakes in listed and unlisted assets, totaling $262 billion, and more than 50% of SoftBank's market value at times. Alibaba became both a "financial blessing and a psychological curse," as Masa spent the next twenty years seeking another investment with such returns.
Alibaba's significance for SoftBank also created challenges. SoftBank became overly dependent on Alibaba financially and overexposed politically due to its Chinese base. Jack Ma's public criticism of Chinese banks and regulators in October 2020 led to the suspension of the Ant Financial IPO and a significant fine. This government crackdown on China's tech industry negatively impacted Alibaba's share price, which began to drift downward in the spring of 2021, severely affecting SoftBank, which still held around one-third of Alibaba stock. Masa had previously opposed selling his stake, being more eager to buy than sell. However, later, a steady sell-down in assets, including a portion of the Alibaba stake, helped SoftBank navigate financial pressures. Despite challenges, Masa remained indebted to Ma for sticking with him and respected Ma as a great innovator and leader.
