The change in investment strategy of Son’s Vision Fund 2 is already being felt by portfolio companies in India.
In mid-September, for instance, when Ritesh Agarwal, founder of India’s second-most valued unicorn Oyo, met Son, the message was to return to the drawing board and focus on scale and profitability, said a person close to the development.
“IPO can happen, but if it takes 6-12 months more than expected to be IPO ready, then so be it," the person cited above said.
In July, Mint reported that Oyo Hotels and Homes, is preparing for an IPO in the next two-three years.
“While we are profitable at a building level; we are continuing to make positive strides at the group level where we are not making profits as yet given that we are making some forward looking investments," said an Oyo spokesperson, who however declined to comment on IPO timelines. “On a year-on-year basis, we have seen that not only are we operating profitably at the building level but at the same time our Ebitda has also improved by 50% (on a year-on-year basis)".
ANI Technologies Pvt. Ltd, the operator of ride-hailing service Ola, and one of the major Indian companies in Son’s portfolio, plans to go public in less than two years after meeting profitability goals required for such a listing in India, according to a Mint report earlier this month.
A spokesperson for Ola did not respond to emailed queries sent on Friday.
Son said recently that he was “embarrassed and flustered" by his track record following the debacle of his two top bets. SoftBank’s portfolio firm WeWork, an office leasing company withdrew its IPO filing on 30 September. Another portfolio company, Uber, saw a tepid debut on the New York Stock Exchange. The ride-hailing company, which saw a private valuation of as much as $76 billion before its public offering in May, has a market value of nearly $49 billion now.
SoftBank’s damages from Uber and WeWork could be over $5 billion, according to a 9 October Bloomberg report.
A SoftBank spokesperson declined to comment on the development.
Yashish Dahiya, chief executive officer and co-founder, PolicyBazaar.com, a unicorn backed by SoftBank, said the investor has been “maturing" over the last three years.
“Three years ago, there was almost an abhorrence for any kind of viability in a business model. It was almost like if it’s a business that’s working, then something is wrong with it. But ever since Rajeev Misra and Munish Varma got involved, there has been a clear movement towards focusing not just on the strategy, but also execution. It’s the maturity that is clearly visible to the actions," he said.
He said Policybazaar will look at an IPO in 2021, most likely on a domestic stock exchange.
To be sure, some of SoftBank’s latest investments have been in companies such as Delhivery, PolicyBazaar and FirstCry, all of which are growing significantly and are not expected to be too far from turning profitable.
But why are IPOs so important? Industry insiders say all companies, including internet and new-age companies, eventually need to go public because the M&A market is not very liquid in India.
“While we have seen the Walmart-Flipkart deal, which was massive, there haven’t been many such significant M&A outcomes as yet. IPO forms a significant mode of exit globally, but for India, it is even more relevant," said Niren Shah, managing director and the head of Norwest Venture Partners India.
He said new age companies have been so far deferring their profitability plans as their focus was solely on growth.
“There are two aspects to be considered before these companies can go public. One—is the company IPO ready? Second—are the public markets open to accepting IPOs? Both those conditions are going to be quite important. I think the IPO market has been reasonably open in the past few quarters but there aren’t too many new age companies which are IPO ready—this will take at least 2 years," Shah said.
Not just the US, India is also seeing a tepid IPO market. Till 15 September, 11 firms in India went public collectively raising a total of ₹10,300 crore, compared with 24 that raised ₹30,959 crore in 2018, data available with the stock exchanges showed.
Experts don’t think the damped sentiments to change soon, particularly for new age companies. “For the new business model companies, it’s a story issue. It’s not a timing issue. People do not understand the business models and will not back something that does not have visibility of profits," said a Mumbai-based investment banker, who did not wish to be identified.