Mumbai: SoftBank Group’s large-ticket investments in India face an uncertain future as the Japanese conglomerate struggles with setbacks in its marquee investments of WeWork and Uber, raising questions on the completion of its second Vision Fund of $100 billion.
Four people directly aware of ongoing discussions between SoftBank and Indian startups said the investor has been mulling two deals for more than six months—a $200 million investment in regional language news aggregator Dailyhunt, and a $300 million funding in eyewear retailer Lenskart.
In both cases, SoftBank has submitted the final term sheets but has not been able to make the investments that are slated to come from the second Vision fund, the people said.
“The capital for both Lenskart and Dailyhunt has to come from the second Vision Fund, because Fund 1 is fully deployed, with money left only for debt repayments and some follow on deals," said the first person cited above, a senior fund manager with a venture capital firm who requested anonymity. “The delay in the investment despite a go-ahead by the investment teams in India and global headquarters has left the companies in question in a lurch," the second person cited above said.
SoftBank confirmed the same in its quarterly earnings release last week, when it said that Vision Fund 1’s investment period ended on 12 September 2019. For the quarter ended 30 September, SoftBank reported a loss of $6.4 billion, while the Vision Fund reported an operating loss of $9 billion.
Reuters reported on 4 October that SoftBank is struggling to raise money for a second $100 billion fund, after the failed initial public offering (IPO) of its much-hyped co-working startup WeWork, which led to SoftBank eventually bailing the company out, albeit at a valuation that was almost $40 billion lower. Ride-hailing company Uber too has had a disappointing post-IPO performance, further impacting the sentiment. The fund will likely be far smaller, the report said.
Saudi Arabia’s Public Investment Fund and Abu Dhabi’s sovereign wealth fund- the Mubadala Investment Co. were the first fund’s biggest backers, pouring in around $60 billion. Both may, however, invest smaller amounts this time around, reported Bloomberg on 16 September.
SoftBank’s investment track record shows that it has not made a single fresh investment in India this year, data from Tracxn indicates. Even the two deals it made in the first quarter of 2019, in e-commerce logistics firm Delhivery and online baby products retailer FirstCry, were deals signed and finalized in 2018, although the paperwork was completed this year. It has invested $250 million in Ola Electric, the electric vehicle arm of Ola, which is already a SoftBank portfolio company.
A SoftBank spokesperson said the firm doesn’t comment on speculation and Dailyhunt and Lenskart did not respond to emails seeking comment.
Recent setbacks have also led SoftBank chairman Masayoshi Son to urge global and Indian companies in his portfolio to sharpen their focus on earning profits before venturing into the path of IPOs, Mint reported on 13 October.
“Depending on market cycles, investors tend to over index on either growth or profitability. While 2019 has been a buoyant year of fundraising, it is unclear if the peak is behind us. But with disappointing performances of recent high profile IPOs, the scales are again tilting in favour of profitability," said Tarun Davda, managing director at Matrix Partners.
To be sure, even as it is yet to strike a new deal in the country, Softbank was busy in India hiring for its local office.
SoftBank has finished hiring a six-member investment team in India. Led by Sumer Juneja from Norwest, the other members include Sarthak Misra (from Matrix Partners), Narendra Rathi( from Morgan Stanley), Vishal Gupta (from TPG), Simran Kaur from Goldman Sachs and Harvard graduate Zoravar Gill, son of Yes Bank chief executive Ravneet Gill, according to a person aware of the investors hiring plans, who spoke on the condition of anonymity.
The new local executives come from backgrounds such as early stage investing and private equity, both of which are very different from SoftBank’s approach so far, which is large technology deals at high valuations.
“Sumer and the team are looking at far more real companies with real revenues and growth, compared to earlier, and are taking far longer to evaluate their future prospects," said the second person cited above.