SoftBank in India
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Investments in India
2011-18
Madhav Chanchani, SoftBank’s India kitty set to cross $10bn, January 30, 2019: The Times of India
From: Madhav Chanchani, SoftBank’s India kitty set to cross $10bn, January 30, 2019: The Times of India
Investment Milestone Comes In Less Than Half Of 10 Years Son Promised In Oct 2014
Japanese telecom and internet major Soft-Bank is set to cross the $10-billion milestone in the country as it closes investments in two e-commerce ventures — baby care retailer Firstcry and sector-focused logistics company Delhivery. Both these are expected to be in the $400-450 million range, helping the Japanese billionaire Masayoshi Son-led firm cross the promised number in less than five years after he announced in October 2014 that he will invest $10 billion over a decade.
Son has been able to build up a significant shareholding in India’s most valued internet and technology companies, like mobile payments giant Paytm, hospitality company Oyo and ride-hailing major Ola. Soft-Bank also owned a stake in the country’s largest e-tailer Flipkart, which it divested to US retail major Walmart last year.
For context, the total capital invested by SoftBank will now be more than the combined assets under management of the top five India-focused venture capital (VC) fund managers. These firms, which include Sequoia Capital India and Accel India, manage a little over $8 billion across multiple funds and have been operating in the country for a decade.
SoftBank’s aggressive dealmaking spree helped define the pace of aggressive fund-raising, backing local players like Flipkart and Snapdeal, as well as Ola, against such well-funded US-based rivals as e-tailer Amazon and ride-hailing major Uber, respectively.
“We never comment on numbers and future investments. We are very excited by the potential that India offers as a market and remain committed to it for the long term,” said Munish Varma, partner at Soft-Bank Investment Advisers, in an emailed statement to a query from TOI.
While SoftBank made its first big bet in India in 2011 when it invested $200 million in mobile advertising platform InMobi, it aggressively started investing in 2014 when it picked up stakes in Snapdeal, Ola and Housing in quick succession.
At that time, the investments were being helmed by Nikesh Arora, the former Google executive that Son had picked as his successor, and were being made out of SoftBank’s balance sheet.
Some investments like Housing and Snapdeal, where it also clashed with founders of the company, did not work out as planned. While Housing got acquired by PropTiger, SoftBank later also invested in online retailer Flipkart and Paytm Mall, which directly compete with Snapdeal.
This has made some founders wary of taking investment from SoftBank, as Ola CEO Bhavish Aggarwal specifically negotiated rights protecting himself against the Japanese firm. But 2016 saw two significant changes — the exit of Arora, and the launch of the $100-billion SoftBank Vision Fund, with which it has started taking bolder bets. This fund is headed by India-born Rajeev Misra, a former senior Deutsche Bank executive.
2012-21
Dec 4, 2021: The Times of India
SoftBank top investor in India: Son
TIMES NEWS NETWORK
SoftBank is the biggest foreign investor in India’s startup ecosystem, the Japanese conglomerate’s founder and CEO Masayoshi Son said
In the last 10 years [2012-21], SoftBank has already invested $14 billion. [In 2021] it has invested $3 billion.
“We are providers of about 10% of the funding to all unicorns in India,” Son said. Soft-Bank’s investments in India include those in Flipkart, Paytm, Swiggy and Zeta.
Funds Portfolio Companies
2018: Dominant position
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From: Samidha Sharma, How SoftBank woos and wins Indian startups with big bucks, April 24, 2018: The Times of India
Funds Portfolio Cos At High Valuation, Goes For Max Ownership
In 2017, Tiger Global, the New York-based investment fund which owns large chunks in India’s top internet companies, was keen on partially selling its shares in the ride-hailing major Ola and cash out. The buyer would have been the most influential technology investor globally, SoftBank. The two parties were negotiating the deal without the consent of Ola’s go-for-broke co-founder & CEO, Bhavish Aggarwal. The proposed secondary share sale by Tiger Global would have given SoftBank — which currently holds a little less than 30% stake in the transportation startup — a stronger control over the company.
Even as Tiger’s secretive partner Lee Fixel — who was not till long ago tagged as the most fervent proponent of the Indian consumer internet story — pursued SoftBank, Aggarwal resisted. Helped by a right that gives the Ola founders the power to veto the transfer of shares among two investors, Aggarwal went ahead and blocked the transaction. In fact, the 33-year-old is now working towards creating a special purpose vehicle or SPV, which would have separate legal rights, to facilitate a secondary sale of shares at the cab aggregator.
This is the first time Ola’s early investors would be selling their shares to other entities and Aggarwal wants to own the highest voting rights even as a minority shareholder to avert any situation where shares change hands without the founder’s go-ahead. His moves come on the back of a possible merger that SoftBank may want to pull off between Ola and Uber, where it holds a stake of more than 15%.
SoftBank’s Dominant Position In Indian Startups
What has been playing out at Ola isn’t unique to the ride-hailing venture, but has affected in some way most of Soft-Bank’s portfolio companies where it owns a significant shareholding.
Online grocery delivery startup Grofers, which had a tough run starting 2016 in the backdrop of the on-demand category seeing a slump, recently raised a $60-million funding round led by existing investors, with the exception of its first institutional backer, Sequoia Capital. SoftBank made sure the rights favour the Japanese group and give it a dominant position on the company’s capitalisation table, and in the event of the sale of the startup. A cap table is a record of all the major shareholders and how much they stack up in their ownership of equity shares, preferred shares and options, and the price they paid for it.
SoftBank, which controls around 35% in Grofers, struck the deal in a way that gave preferential rights to investors in the latest round of funding. Tiger Global and Yuri Milner, the DST Global founder, ponied up, while Sequoia opted out, in a classic pay-to-play situation. The investors in the last fund-raise also ended up getting a significant say in matters related to sale of the company that cannot be any longer blocked by its founders. Grofers closed its latest financing, valuing it at $260 million pre-money, which was a down round — that’s when a startup is valued lower than its previous fund-raise.
Flipkart may offer counter-narrative
In 2016, the time that Grofers was struggling, another of SoftBank’s Indian companies — budget hotel brand Oyo Rooms — was in a tough spot. It was out raising capital but wasn’t able to rope in a new investor. This was also the time Nikesh Arora, the heir apparent to SoftBank’s Masayoshi Son, had abruptly quit the group, putting a question mark on a bunch of his investments here. But SoftBank stepped in and wrote a $60-million cheque for Oyo in a flat round, valuing the Gurgaon-based startup at around $400 million.
Son, the maverick Soft-Bank founder, came back and offered $500 million to Oyo a year later. This would have given majority control to the investor. Early investors in Oyo like Lightspeed Venture Partners and Sequoia Capital opposed this massive capital infusion, which would have diluted their shareholding and relegated them to the bottom of the cap table. Finally, Oyo halved the fund-raise, picking up only $250 million from the SoftBank Vision Fund with $25 million coming from the family office of the Hero Group.
Cut to April 2018 — Soft-Bank is back in play, with an offer to pump $1 billion into Oyo, as we reported earlier, which will decidedly give it disproportionate rights if the company does take all of that money.
Unlike its older portfolio firms, Flipkart may be some what of a counter-narrative to SoftBank’s usual approach. Having come in last year with a 23-24% stake in the Indian ecommerce major, it has not been able to steer the ongoing deal with Walmart single-handedly. If the deal goes through, the American retailer will get a majority control at Flipkart. Sources say SoftBank is up against older investors in the company like Naspers and Tiger Global, among others. Masa would have wanted to consolidate the online shopping market, bringing together Flipkart, Alibaba and Paytm, which seems unlikely with Walmart’s entry.
Not Too Many Options For Founders
What does all of this signal about SoftBank? Investors and founders say in most of these situations, these highgrowth, cash-guzzling companies did not have an option to tweak the contours of the deal, considering that no one else was shelling out the required capital. An early-stage investor posited on the condition of anonymity, “What can SoftBank do with these rights? It’s not like they will take over the companies and run them the way some of the large buyout funds or private equity firms do. They will need the entrepreneurs to run the ship. Look what happened at Snapdeal, where the entrepreneurs (Kunal Bahl and Rohit Bansal) with singledigit ownership eventually prevailed in not selling the e-commerce company. Also, India is a complex market where there isn’t a lot of good senior executive talent. As an investor, you cannot simply replace the founder-CEO with someone from the outside.” The person pointed to Flipkart being the only notable exception where Tiger’s move to bring in Kalyan Krishnamurthy turned out favourably for the etailer.
One of the founders, who has SoftBank as an investor, says the kind of capital the Japanese group brings in makes it tough for other investors to match. At this point, it’s the decision of talking this money or letting it go to to its competitors. Another venture capitalist (VC) at a global fund says the most significant impact of SoftBank and its money power has been on smaller shareholders who have become irrelevant on the cap table. “They push company strategy in a direction that uses more capital, which may or may not be the original plan,” he says.
But it’s fair to note that SoftBank has been the source of secondary transactions, helping exit-starved VCs shore up returns from companies like Flipkart and Paytm, which still remain private.
TOI wrote a piece on how SoftBank had become a quasi-IPO for lot of investors in India and globally. SoftBank did not respond to a detailed mail on the story but said they are long-term investors in India.
What’s The Endgame?
In many companies, Soft-Bank is happy to put in large sums at high prices to get in — this makes it hard for the founder or existing investors to say no to the offer. But later on, when no other investor wants to come on board in subsequent funding rounds, they pump in capital at flat to marginally higher prices, which effectively wipes out gains for early-stage investors and dilutes founders. Therefore, the blended price is much lower for SoftBank when they have a very high ownership.
But with more heavyweight investors — like China’s Tencent, Alibaba, as well as South Africa’s media & internet group Naspers — backing some of the bigger e-startups, there could be a shift in the balance of power towards the founders and companies in India, some industry experts say. Another prolific tech investor says that SoftBank is playing ahead of the opportunity. India isn’t likely to be China any time soon. China was $500 per capita income 15 years ago and is $10,000 today. India is $2,000 today and will go to $4,500 in 10 years. “So while there is a big opportunity, the kind of spending being done by SoftBank isn’t commensurate with the returns and, hence, they are pushing companies to go outside India, merge with their competitors, and consolidate the market.”
