SoftBank to shut down venture capital arm: report
The closure of SoftBank Capital means the firm will invest mostly in older start-ups rather than do early-stage deals that VC firms typically tend to
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Bengaluru: Japan’s SoftBank Corp., one of the top two investors in start-ups in India, is shutting down its venture capital (VC) arm and will avoid investing in early-stage firms, shifting its focus entirely towards backing more established companies, according to a report.
By shutting SoftBank Capital, the parent is moving away from the approach that yielded it record returns in China’s Alibaba Group, one of the world’s most valuable Internet companies. The Japanese firm was one of the first backers of Alibaba and picked up a stake in the Chinese company in 2000, when Alibaba was just one year old.
SoftBank is also the biggest investor in two of India’s top three most valuable start-ups, online marketplace Snapdeal and cab-hailing service Ola. It has already invested more than $1 billion in these two start-ups and real estate portal Housing over the past nine months.
“As we look at the future for the next tens of years, we believe that the way to preserve the long-term sustainability of SoftBank is to be large, minority shareholders of many assets. We believe that it’s less crowded in the large-check marketplace,” SoftBank president Nikesh Arora was cited as saying by news website Re/code.
After shutting its VC unit, SoftBank will invest directly in late stage start-ups, according to Re/code, one of the popular websites covering technology in the US.
“As we build SoftBank 2.0, we increasingly believe that our future lies in a smaller universe of companies, which pioneer breakthrough innovation and have the potential to be market and category leaders,” Arora said through a spokesperson. “We want to work with them closely and guide and support them to success, as we have done with Snapdeal and Ola, and many others. We also think having a diversified portfolio including mature companies and in some cases, exceptional early-stage companies, is key to SoftBank’s long-term viability. We continue to be very excited by the possibilities that India offers.”
SoftBank is one of the most deep-pocketed start-up investors in the world. The company owns roughly a third of Alibaba, which has a market value of more than $180 billion. It is also one of the most prolific start-up investors with a portfolio of anywhere between 1,300 and 1,500 companies, according to various media reports.
It’s unclear how the shift in strategy will affect SoftBank’s current and potential deals in India. Though start-ups are growing at an explosive rate, there are only a handful of large e-commerce companies.
In late 2014, SoftBank chairman and founder Masayoshi Son pledged to invest at least $10 billion in Indian Internet and technology companies over the next decade. Last month, the Japanese firm said it was partnering Bharti Enterprises Ltd and China’s Foxconn Technology to invest at least $20 billion in solar energy projects in the country.
And at least for now, SoftBank seems to be interested in young Indian companies, provided they are in businesses that require large amounts of capital. SoftBank is in talks with hotel booking site Oyo Rooms for a $100 million investment, The Times of India reported on 18 May. Oyo Rooms started operations as early as May 2013 so if a deal goes through, it wouldn’t be a late-stage deal by any means.
SoftBank’s other portfolio company in India, Ola, is also just a four-year-old start-up, even though it’s valued at $2.5 billion, according to people familiar with the matter.
Late-stage deals typically have lower risk compared with investing in early stage start-ups, many of which don’t make profits or even have proven revenue generating ability.
SoftBank’s decision to move away from early-stage deals is contrary to what most other VCs, at least in India, have been doing: investing aggressively in young start-ups.
VC firms such as Sequoia Capital, SAIF Partners and others, which mostly funded later-stage start-ups in the past, have now shifted to early-stage deals, in the race to find the next big Internet company, Mint reported on 16 April. Even US-based Tiger Global, the biggest investor in Indian start-ups, is now aggressively picking up stakes in young start-ups.
“SoftBank may just be cutting down on early-stage deals because they have such a massive portfolio,” said one investment bankers who has worked with SoftBank on deals.
“I don’t think it will affect their India approach in a big way. They had made it clear from the start that they are only interested in doing large deals here,” the banker said on condition of anonymity.
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