Mumbai: A second massive Vision Fund from Japanese conglomerate SoftBank Group Corp. would provide further fillip to Indian start-ups trying to build large businesses, experts say.
The fact that SoftBank chief executive Masayoshi Son has already written multi-billion dollar cheques in India from his first Vision Fund and has benefited from the investments indicate that the Indian market would continue to be a major focus for the next fund too. At a conference in Tokyo last month, Son said SoftBank would launch another Vision Fund soon without disclosing the size of the fund or when the company proposes to raise it.
SoftBank’s first Vision Fund raised more than $93 billion, making it the largest private equity fund.
“SoftBank continues to be committed to India as a market and plans to remain invested for the long term," a spokesperson for the company said, while declining to comment on the group’s future plans.
According to venture capital investors, a second massive Vision Fund from SoftBank could be expected to invest in new-age businesses and would continue to use the same strategy of writing larger cheques as it used to do from its first Vision Fund.
“SoftBank’s actions show that it is interested in iconic and new-age businesses and is willing to put in large cheques. This kind of action will build business in China, India and Asian markets apart from Silicon Valley in US. By and large, most of the money will go to new-age businesses, especially in Asian economies," said Sarath Naru, founder and managing partner, Ventureast.
The Japanese conglomerate, which started investing in India in 2011, has picked up stakes in several consumer internet companies in India and in the process, made unicorns out of several of them.
According to private equity tracker, Venture Intelligence, SoftBank has so far done 24 deals since 2011 in India, committing more than $7 billion.
SoftBank’s investment portfolio in India include companies such as Flipkart, Ola, Paytm, Snapdeal, Oyo Rooms, InMobi and others.
In August, 2017, SoftBank wrote its largest cheque in India till date, when it invested $2.5 billion in e-commerce major Flipkart.
SoftBank is likely to sell its entire 21% stake in Flipkart to Walmart Inc. in a deal that values the Indian e-commerce firm at $22 billion.
“Companies need time to innovate and build businesses, and sometimes even create markets. So, additional pools of capital are always positive for the ecosystem. They will deploy globally. India is a large opportunity where big companies will continue to be created. They have had successful outcomes in India, so no reason why they will not continue to invest more," said Sumer Juneja, partner at Norwest Venture Partners.
But concerns persists surrounding valuations becoming overheated with the Vision Fund - which has a reputation of disrupting both the industries it invests and other suppliers of capital.
“The valuation of start-ups in India is already high. I hope SoftBank’s funding doesn’t impact further. Investors will become more shy in early-stage investing because the kind of investment SoftBank does, only happens after the value has been built and the size of investment is pretty large which automatically leads to trickle-down effect. I hope it’s not going to impact early-stage valuations," said Naru of Ventureast.
SoftBank has had a history of investing in start-ups at a relatively higher valuation.
Snapdeal saw its valuation vault to $2 billion when SoftBank first invested in the e-commerce company, while Ola’s valuation jumped three times to more than $600 million. Housing.com, a two-and-a-half-year-old firm when SoftBank led a $90 million round, was valued at more than $200 million.
Not all VCs are rattled by SoftBank’s proposed second Vision fund.
“Capital alone cannot determine valuation. Ultimately, the fundamentals of the market, company and quality of management matter. The new fund is an opportunity for all players in the market. Early investors will benefit as additional pools of capital will be available for their companies to grow further," Juneja of Norwest added.