The $8 Billion Bet

Masayoshi San’s SoftBank is on an unprecedented spending spree in India with investments being poured into a growing list of growth-stage companies every other month. So, right off the bat, I am going to inform you that the numbers here might be history by the time you read this.

To the scarce few in the business world, who have not heard of this Japanese conglomerate before, here’s a quick introduction. The SoftBank Group is a multinational holding company with a number of subsidiaries including the name giver, SoftBank Corporation, which was found in 1981 by a young 24-year old Masa as a computer parts store. Among the other subsidiaries are stakes in some big names: Sprint Corporation, Yahoo Japan, Fortress Investment Group, Boston Dynamics, Alibaba Group and the one-of-a-kind Softbank Vision Fund. While SoftBank Group first set foot in the Indian market in late 2011 with some small investments, it was not until the introduction of the $100 billion SoftBank Vision Fund (SVF) in 2016 that the company stepped up their game in India.

Any words I use to describe the SVF would understate it. Here’s an interesting graph that shows its might:

The SVF is primarily backed Saudi Arabia’s Public Investment Fund which contributes to nearly half of the $100B. The next biggest backer is SoftBank itself, with a $30B commitment. The other big names backing this fund are Apple, Sharp, Foxconn, Qualcomm and Mubadala. The fund has so far invested in nearly 50 high-growth companies worldwide including ride-sharing app Uber, co-working space provider WeWork and chip-designer ARM.

The north star of SoftBank is a question often posed by Masa, “What if we went bigger, quicker and faster?” Answering this question, Softbank has made a slew of investments in India. Here is the ever-growing list of bets.

SoftBank Investments in India

Flipkart — $2.6B

SoftBank’s biggest bet in India has already paid off. The $2.6B that the company invested in October 2017 in the e-commerce rival to Amazon India ballooned to an astonishing $4B in less than a year when they sold to Walmart who bought the Indian company for $16B. The rate of return proved too exciting for Masa — who has witnessed a fair share of exponential returns — that he inadvertently announced the deal before it was confirmed. Despite the notorious 40% short-term gains tax that SoftBank was subject to, the dream exit could not have happened at a better time. The deal came after a failed attempt to merge Flipkart and Snapdeal, another e-commerce company that SoftBank has the majority stake in, and before the tough, new e-commerce policy went to into effect this February.

Paytm — $1.4B

Paytm is currently India’s largest digital payment solutions provider. The company was the first to bring the digital wallet to India and this bold move has given it a slight lead over competitors, including Google Pay and PhonePe, who entered this segment later. Today the company is more than just a digital wallet and offers services in travel bookings, store payments and ticketing. It is currently the second most valuable start-up in India and unsurprisingly SoftBank invested a whopping $1.4B in 2017, the largest funding round by a single investor in India’s tech sector. With the future of digital payments looking bright and the government pushing hard to promote a digital India, Paytm has a promising future if they continue staying ahead of their competition.

Ola — over $1B

Homegrown Uber rival Ola was one of SoftBank’s first investments. The investments began in late 2014 with SoftBank leading funding rounds every year since. SoftBank is estimated to have invested over $1B by the end of 2017 for a 26% stake in the company. SoftBank has in-fact attempted to invest substantially more, $1B each in 2016 and 2018, but has faced resistance from Ola co-founder and CEO Bhavish Aggarwal who is hesitant to cede further voting control of his company. Speculations that SoftBank might merge Ola and Uber were downplayed by Masa who has indicated that it would be up to the founders. Ride-hailing services have seen a dip in growth in the last two years forcing companies to cut driver incentives and explore other services. In 2017, Softbank wrote-off a portion of their investment as a result of Ola’s lower valuation. Ola is directing focus to scooter rentals, outstation travel and Foodpanda, its food delivery service, to start making profits.

Oyo — over $1B

Want a quick break from SoftBank glory, here’s a start-ups tongue-twister that you should try out loud: Ofo Ola Oyo.

Oyo is currently India’s largest hotel network that offers standardised stay experiences at affordable rates. They recently moved from an aggregator model to franchising. The first impression does not suggest any outstanding feature to attract SoftBank’s attention. Dig deeper and you will find their website proudly claim that “the most advanced hospitality tech takes shape here.” Oyo is as much a data science company as a hotel network. They have digitised every process in the hotel booking experience to make it quick and efficient. The vast data collected is then analysed and used to improve services, giving them an edge over traditional competitors. When asked how does SoftBank spot opportunities, Rajeev Misra, CEO of the SoftBank Investment Advisers which oversees the SVF, replied, “The first part is simple. If we look at a business proposal that provides a better service at a cheaper cost — something that uses technology to deliver higher quality more efficiently — it will be successful.” Oyo, like many others on this list, passes this criterion with flying colours and SoftBank has acknowledged that by investing over a $1B in the company since 2015. The company is now expanding rapidly in China, Malaysia and Nepal and testing the waters in the UK and USA.

Snapdeal — $900M

The company that entered the e-commerce space in 2011 to compete with Flipkart and Amazon, was one of Softbank’s early investments in India. Softbank first invested $75M in 2013, then threw in $627M in 2014 before participating in a $500M funding round in 2015. This appears to be the worst performing bet yet, as Snapdeal could not keep up after Amazon began investing heavily in its Indian arm. In May 2017, Softbank wrote-off a significant portion of this investment following a markdown in Snapdeal’s valuation. Another attempt to save the investment failed after talks to merge Flipkart and Snapdeal were unsuccessful. Snapdeal founders quickly announced a new strategy called Snapdeal 2.0 to revive the company by selling non-core assets and shifting focus to value-conscious customers. The strategy appears to have paid off as Snapdeal became cash flow positive in June 2018, but the lack of any funding by Softbank since 2015 is a negative sign.

Paytm Mall — $400M

After booking a hefty profit on the Flipkart sale and writing-off the investment in Snapdeal, one would assume Softbank is leaving the Indian e-commerce sector for good, but one would be wrong. In April 2018, Softbank bet around $400M on Paytm’s e-commerce spin-off. Paytm Mall made a late entry to the ultra-competitive e-commerce sector in early 2017. Although the company only had a 6% market share at the end of 2017, Softbank’s investment is a vote of confidence in the ability of the company to make gains in the Indian market. Paytm Mall plans to integrate with logistics company Xpressbees and grocery delivery company BigBasket to serve a wider range of customer needs more efficiently.

InMobi — $205M

InMobi, India’s first unicorn, received $200M funding between 2011–2012 making it Softbank’s earliest investment in India. At the time, InMobi was the largest independent mobile ad network in the world. But the inability of the company to return profits while competing with the two digital advertisement giants, Google and Facebook, forced SoftBank to write-off its investment in 2013. The company, however, after 10 years turned profitable in the year 2016.

Grofers — around $150M

Grofers, launched in 2013, is a low-price online supermarket present in 18 cities across India. Softbank led a $120M funding round in 2015 and later invested $60M in 2016. The second investment happened at a lower valuation raising questions on the company’s performance. This led it to pivot from a marketplace model to an inventory-based model to get back on the growth track and compete with BigBasket and Amazon. The change in strategy appears to have worked as the company reported a fivefold growth from 2017 to 2018, leading to speculations of more investments by Softbank.

PolicyBazaar — $150M

In June 2018, SoftBank bet $150M on Policy Bazaar to transform the underdeveloped and broken insurance market in India. This one-stop online marketplace for insurance aims to make the process fair, transparent and sustainable. PolicyBazaar briefly made a profit in FY 2017 but could not repeat the feat the following year. The company estimates that over 20% of the life insurance and 7% of retail health coverage purchases are done on their platform.

FirstCry — $150M

In its first play of 2019, SoftBank invested $150M in the baby and mother care product retailer that has rapidly grown since its founding in 2010. SoftBank is expected to further invest $250M for a 40% stake in the company. In 2016, FirstCry acquired Mahindra’s baby care business in a deal worth $50M making the joint entity one of the largest omnichannel retail player in this niche. “I believe that the future belongs to click and brick business,” stated Anand Mahindra, chairman and managing director of Mahindra Group, in a statement following the consolidation. FirstCry has embraced this idea and is quickly expanding both its offline and online channels. — $90M is a real estate search portal that attracted SoftBank’s attention in late 2014 by revolutionising the online real estate market through its tech-driven approach. This led to a $70M investment in December 2014, followed by a $15M investment in 2016. Competition from Commonfloor, 99acres, Makaan and MagicBricks, along with leadership trouble, strained the company’s finances and led it to restructure in early 2016. Despite the efforts, the company was sold to its rival PropTigers for $70M, a lower value than the invested capital. SoftBank further pitched in $5M in the larger merged company.

Hike — around $30M

Hike is a messenger app that launched in 2012 to compete with WhatsApp. It first received investment through the Bharti SoftBank joint venture to the tune of $7M in 2013 and $14M in 2014. Two years later, SoftBank participated in a $175M funding round that was led by Tencent and Foxconn. Hike continues to innovate with features tailored to the Indian market but its active user base dwarfs in comparison to WhatsApp’s. The financials are not rosy as well, but neither was WhatsApp’s when Facebook paid a record-breaking $19B for it.

In 2014, Masa pledged to invest $10 billion over the next 10 years in India. In 2018, Masa updated, “We would definitely overachieve on our commitment much ahead of time and at a much bigger scale.” And he was right. The company has invested close to $8 billion in half the time, leaving behind other major venture capitalists in the dust. They own large stakes in more than half the unicorns in India. These numbers are, needless to say, mind-boggling, but it remains to be seen if the returns will be as well. Most companies on this list are yet to turn profits. Fans of Masa’s vision will point towards his $20 million investment in Alibaba in 2000 which is now worth a hefty $130 billion, but his investments in India have all been in late-stage companies. Of course, SoftBank does not share the same pessimism that I have. In November 2018, they announced plans to open their Indian office in Mumbai, signalling that they are just getting started. No matter the outcome, SoftBank would have lived by its core value, “Try hard, have fun.”



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