SoftBank eyes smaller deals, early entry into startups in India revamp

SoftBank Group Corp., known for writing hefty cheques at sky-high valuations, is looking at smaller transactions and plans to invest in startups at an earlier stage as part of a revamp of its India strategy.

According to three people familiar with the Japanese investor’s internal discussions, SoftBank will focus on deals between $100 million and $200 million in companies.

The smaller deals are a far cry from the billion-dollar bets in Flipkart, Ola, Paytm and Oyo that made SoftBank the largest and most influential investor in the startup scene in India.

SoftBank sold its stake in Flipkart last year for $4 billion, having invested around $2.5 billion.

Since then, it has scouted for smaller deals that are below $500 million in value, its typical investment size in the past few years.

Over the past months, SoftBank has held discussions with online medicine delivery firm PharmEasy and news aggregator DailyHunt to invest $150-200 million. In May, it participated in a $220 million funding round in online grocery platform Grofers with other investors such as Tiger Global, Sequoia and KTB Ventures.

The focus on smaller deals comes after it hired Sumer Juneja from Norwest Venture Partners, a growth-stage investor, to head its India operations.

At Norwest, Juneja led the firm’s investments in IndusInd Bank, Veritas Finance, National Stock Exchange and food delivery unicorn Swiggy.

Juneja plans to have a six-member team by the end of the year, the people cited above said on condition of anonymity. “Juneja is looking for people with an early-stage mindset because that’s where SoftBank needs a foothold,” said one of the persons cited above.

In addition to smaller deal sizes, the Japanese investor is also tapping the venture capital space.

Mint reported on 9 May that SoftBank’s venture capital arm, SoftBank Ventures Asia, will invest $10-20 million in the consumer internet space, with a focus on healthcare, fintech and artificial intelligence startups.

Incidentally, China’s Alibaba Group Holding Ltd, another investor with huge bets on technology startups in India, is also looking at a similar strategy.

Mint reported on 6 May that Alibaba is reviewing its India investment strategy that could see the Chinese e-commerce titan take a more judicious approach by making more vertical e-commerce investments and smaller early-stage deals, after its large bets in Paytm Mall and Snapdeal did not work out as expected.

A major reason why investors such as SoftBank and Alibaba are looking at small deals and early entry into breakout startups is to reduce uncertainty around exits.

The recent weak public market debut of Uber Inc, where SoftBank pumped in several billions at an aggressive valuation has raised doubts about its ability to generate profitable exits.

“Uber’s subdued listing definitely questions SoftBank’s strategy. Can you come in at such high private valuations and still make money?” asked an Indian investor with five unicorns in his portfolio.

Uber listed its shares in New York this month, with its valuation marked down to $76 billion on opening, far less than the $120 billion its bankers had proposed just a few months ago.

Uber’s weak listing also led to a fall in SoftBank’s shares, wiping out billions from its market capitalization.

“SoftBank could be going back to its pre-Vision Fund strategy, where it either invested small sums, or started with a small investment before investing more. It also indicates their desire to get earlier into certain sectors and firms,” said Shivakumar Ramaswami, founder of Indigoedge, a technology investment banking firm.

“India’s late-stage startups are commanding a valuation premium because of a demand-supply gap. The scarcity of scaled companies means valuation is higher given that the number of investors interested is more than the number of companies,” he added.