SoftBank's new India strategy: 2nd Gen entrepreneurs only, smaller deals

SoftBank's new India strategy: 2nd Gen entrepreneurs only, smaller deals

New cautious strategy may have evolved since existing investee companies such as Paytm, OYO, Ola and others continue to burn cash and struggle for profitability despite years of pumping in billions of dollars

The world's largest fund - $100 billion SoftBank Vision Fund (SVF) - is next looking at second generation entrepreneurs in India such as Myntra's Mukesh Bansal and Flipkart's Sachin Bansal for its new round of investing in the country, SoftBank Vision Fund CEO Rajeev Misra and Munish Varma, Managing Partner, EMEA, Asia told BusinessToday.In in an exclusive conversation.

SVF's focus on second generation entrepreneurs will likely come as a disappointment for hoards of first-gen entrepreneurs hoping to tap into the $50 billion of univested funds in SoftBank Vision Fund I.

The cautious new strategy may have evolved since its existing investee companies continue to burn cash and struggle for profitability despite years of pumping in billions of dollars.

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With nearly $11 billion already invested in India in firms such as Paytm, OYO, Ola, Lenskart, Delhivery, PolicyBazaar, Grofers, FirstCry, and Unacademy, the past few years have seen SoftBank pausing its aggressive multi-billion dollar investing run in India on the back of setbacks in investments such as Snapdeal. In 2017, it chose to exit Flipkart in favour of Walmart Inc. Apart from SVF's investments, SoftBank Group has also invested in social media platform Hike which is still to start a revenue model.

"We have more capital than we can deploy. That doesn't mean we're going to make silly investments. Given what I lived through last 7 months, I have to answer," say Misra. "We can't migrate our thesis. It's AI, disruptive. I'm not going to invest in a Yes Bank or some retail company, bricks and mortar company. That's not our thesis for investing. The entrepreneur has to be right. The market has to be right. There is no shortage of capital. It is just shortage of opportunities in the world today. Not only in India. It's all over the world."

Paytm, for instance, reported nearly Rs 4,000 crore in losses on Rs 3,580 crore consolidated revenue in FY19 and another Rs 2,600 crore at around Rs 3,600 crore revenue in FY20. The company said it was able to curtail losses by optimising expenses. Ola and OYO also continue to report losses. As a result, SoftBank reported a net loss of $17.7 billion in FY20 ending March, 2020 - its first loss ever in 15 years. WeWork and Uber alone contributed $9.8 billion of that loss.

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Consequently, the past year has seen comparatively much smaller investments in second generation entrepreneurs such as Ronnie Screwvala's Unacademy (it also evaluated Byju's but found it too expensive); Mahindra group-backed FirstCry, and established firms such as Yashish Dahiya-led PolicyBazaar. Unacademy raised $150 million in a SVF-led funding while PolicyBazaar got $130 million. In February this year, FirstCry received nearly $296 million in funding from SVF, with an additional commitment of $100 million in 2021.

SVF's new investments though will only follow the fund's new global strategy to invest exclusively in AI-driven companies which are disrupting their businesses. Besides existing investments, SVF is looking at health tech, edtech and enterprise SaaS as new areas to focus on. "There may be opportunities across this entire spectrum with big offline market moving to online. We want to see how we can play more in that space," says Varma.

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"We are 400 employees, of which 40 are in operating group. Our partner in India Vikas Agnihotri is not an investing partner. He's an operating partner. He helps these companies. We're not just sitting on board. We're helping Lenskart go to Middle East and Singapore. We're helping FirstCry grow to Middle East, Singapore and other countries. We're helping these companies expand globally. Help them with strategy, higher staff. It's not just capital. We become the biggest shareholder and we help them with expansion. That is what differentiates us. We are more than capital," says Misra.