How a Street party helped SoftBank cast off its Indian struggles

SoftBank is sitting on $10 billion gains in India after the stellar listing of several of its portfolio companies, in a remarkable turnaround for the Japanese investor once perceived to be struggling to cash out.

In the last one week alone, three SoftBank-backed companies—Ola Electric, Firstcry and Unicommerce—went public, with their shares rapidly rising thereafter. According to a top SoftBank executive, the harvest has just begun.

“With the latest IPOs, we can potentially return more than $10 billion from the Indian market, almost the money Vision Fund has deployed in India. And we have only begun harvesting. It puts us in a solid position. We are locked in for the next six months, but there is absolutely no pressure or timeline to exit," Sumer Juneja, managing partner, and head of EMEA and India at SoftBank said.

The $10 billion includes shares worth over $7.5 billion SoftBank has sold in IPOs, as well as the value of shares it continues to hold in the companies that have gone public. Several of SoftBank's portfolio companies are yet to go public, and the investor stands to gain more when they do.

Some of SoftBank's earliest investments in India were in companies such as InMobi, Snapdeal, Oyo and Paytm, which were already at high valuations, and the investor could not make an exit. SoftBank also saw several leadership changes, and took losses in Paytm and Snapdeal. It is yet to exit InMobi and Oyo.

Change of guard

However, with a change in guard over the last five years, it has refreshed its investment style, focussing more on late-stage minority stakes and entering companies at around $1 billion to $2 billion in valuation.

This has paid off.

“We have selected good companies, come in at the right valuations, and are sitting on material gains and good IRRs (internal rates of return). Among the 10-odd listed companies so far (Zomato, Paytm, PolicyBazaar, Delhivery, Ola Electric, FirstCry, Unicommerce, GoDigit, Nykaa and Mamaearth), over six companies are ours. So, we have a very high market share," Juneja said.

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SoftBank has invested $10.6 billion in India so far, through two Vision Funds, as well as through earlier funds.

On Tuesday, baby apparel retailer FirstCry listed at a premium over 40%, while SaaS business Unicommerce shares more than doubled on listing. Since its listing last week, Ola Electric has also risen by over 40%. SoftBank continues to hold some stakes in these companies, after selling some in their IPOs.

Year of exits

Over the last year, SoftBank has completely exited Zomato, Paytm and PolicyBazaar; it continues to hold stakes in Delhivery, Ola Electric, FirstCry and Unicommerce. Separately, it plans to bring several others to market in the next two years, including Lenskart, Meesho and OfBusiness. Swiggy, another portfolio company, has already made a confidential filing for an IPO.

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Juneja declined to comment on specific companies that could go public in future, stressing the Indian market had become more accepting of tech companies.

"If you have a company that has a solid vision, high corporate governance, and has a story that makes sense – it doesn't have to be profitable today, but it has to have a path to profitability," Juneja said.

“The markets in India are getting deeper. The Indian markets understanding of tech stories is better".

Investment pipeline slow

Last week, SoftBank Group announced its April-June quarter earnings, returning to the black with a profit aided by gains in some of its tech stocks which helped offset its other losses.

“Since a very tough time last year when we had shifted to the offence mode, we are back in the investment mode. But at the same time, we are very selective and very careful in discussions with the investment committee to make sure that we carefully select the investee companies for vision fund II," SoftBank finance chief Yoshimitsu Goto said in the earnings call, Mint had reported.

While the two Vision Funds including LatAm funds cumulatively made investment gains of $12 million, SoftBank’s Vision Fund 2 made a loss of $2.6 billion. The first vision fund made a profit of $2.8 billion. Overall, SoftBank Group reported a first-quarter net profit of ¥10.5 billion from a loss of ¥316.2 billion in the same period a year earlier. Its net sales grew 9.3% to ¥1.7 trillion.

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In India, even as it is focussed on exits, the Japanese investor has been scouting for new investment opportunities. However, that is a consequence of the pipeline being fairly slow, Juneja said.

It invested in a follow-on round in existing portfolio company Meesho in March, but otherwise, it has not made a fresh investment in 18 months.

“We are very keen, unfortunately or fortunately, on the growth equity side, on tech, and we will obviously do tech in AI-first companies – but the pipeline has been slow. This is because entrepreneurs have to get readjusted to the valuations, which they are," Juneja said.

There has also been a drought in Series B and Series C rounds. As a late-stage tech investor, SoftBank invests after Series C in AI-led tech companies.

"We are more confident that we will be able to deploy more capital in the coming year," Juneja said.