A number of large ticket investments by Softbank in Indian startups run the risk of coming undone at the last moment due to the Japanese investors’ recent setbacks with marquee portfolio investments such as WeWork and Uber which have failed to enthuse investors and have put a big question mark around the raising of its second Vision Fund of $100 billion comprising of equity and debt.
According to several people directly aware of ongoing discussions, SoftBank has been mulling two deals for over six months now – a $200 million investment in regional language news aggregator Dailyhunt, and a $300 million funding in eyewear retailer Lenskart. While in both these cases, the people cited above said that Softbank has given final term sheets but has not been able to proceed with the investments which are slated to come from the second Vision fund.
“The capital for both Lenskart and Dailyhunt has to come from the second vision fund, because Fund 1 is fully deployed, with money left only for debt repayments and some follow on deals,” said the first person cited above, a senior fund manager with a venture capital firm who requested anonymity. “ The delay in the investment despite a go ahead by the investment teams in India and global headquarters has left the companies in question in a lurch” the second person cited above said.
SoftBank confirmed the same in its quarterly earnings release on Wednesday, when it said that Vision Fund 1’s investment period ended on September 12, 2019. For the quarter ending 30 September, SoftBank Group reported a net loss of $6.4 billion, while the Vision Fund reported an operating loss of $9 billion.
Reuters reported on 4 October that SoftBank is struggling to raise money for a second $100 billion fund, after the failed IPO of its much-hyped coworking startup WeWork, which led to Softbank eventually bailing the company out, albeit at a valuation almost $40 billion lower. Ride-hailing company Uber too has had a disappointing post IPO performance, further impacting the sentiment. The fund will likely be far smaller, the report added.
Saudi Arabia’s Public Investment Fund and Abu Dhabi’s sovereign wealth fund- the Mubadala Investment Co. were the first fund’s biggest backers, pouring in around $60 billion. But both may invest smaller amounts this time around, reported Bloomberg on 16 September.
Softbank’s investment track record shows that it has not made a single fresh investment in India so far this year, data from Tracxn indicates. Even the two deals it made in the first quarter this calendar year – in ecommerce logistics firm Delhivery and FirstCry, were deals signed and finalized in 2018, but paperwork for which was completed this year. Further, it also invested $250 million in Ola Electric, the EV arm spun off from Ola, already a SoftBank portfolio company,
A SoftBank spokesperson said the firm doesn’t comment on speculation and Dailyhunt and Lenskart did not respond to an email seeking comment.
Recent setbacks have also driven Softbanks’ Son to urge global and Indian companies in his portfolio to sharpen their focus on earning profits before venturing into the path of initial public offerings (IPOs), Mint reported on 13 October.
“Depending on market cycles, investors tend to over index on either growth or profitability. While 2019 has been a buoyant year of fundraising, it is unclear if the peak is behind us. But with disappointing performances of recent high profile IPOs, the scales are again tilting in favour of profitability,” said Tarun Davda, managing director at Matrix Partners
To be sure, even as it is yet to strike a new deal in the country, Softbank was busy in India hiring for its local office.
SoftBank has finished hiring a 6-member investment team in India. Led by Sumer Juneja from Norwest, the other members include Sarthak Misra (from Matrix Partners), Narendra Rathi( from Morgan Stanley), Vishal Gupta (from TPG), Simran Kaur from Goldman Sachs and Harvard graduate Zoravar Gill, son of Yes Bank chief executive Ravneet Gill, according to a person aware of the investors hiring plans, who spoke on the condition of anonymity.
The new local executives come from backgrounds such as early stage investing and private equity, both of which are very different from SoftBank’s approach so-far – large technology deals at high valuations.
“Sumer and the team are looking at far more real companies with real revenues and growth, compared to earlier, and are taking far longer to evaluate their future prospects,” said the second person cited above.