Posted with permission from Value Walk

The SoftBank Vision Fund, the largest technology investment fund in the world, has set its sights on India. In August, the fund added another Indian tech firm to its growing portfolio: It spent $2.5 billion to buy a 20% stake in Flipkart, India’s largest online retailer and its most valuable startup. The deal is the biggest private investment so far in India’s consumer technology sector — and the fund is just getting started. Indian firms will comprise “a big part” of its investments, said Vision Fund CEO Rajeev Misra in a recent media interview. “We are just beginning.”

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SoftBank, best known for investing in Yahoo and backing China’s e-commerce giant Alibaba to stall Amazon’s foray there, is calling the shots for the fund. The $93 billion fund’s largest investor is the Saudi Arabia Public Investment Fund, followed by Softbank and the UAE’s Mubadala. Apple, China’s Foxconn, Qualcomm and Sharp are also investors. To date, the fund has invested more than $6 billion in India including stakes in four unicorns — Flipkart, Paytm (India’s largest digital payments startup), Ola (India’s largest ride-hailing app) and InMobi (mobile ad firm).

Other startups in its India portfolio include OYO Rooms (India’s largest online hotel aggregator), Hike (messaging app) and Grofers (online grocer). “India is a land of vast opportunities,” SoftBank founder and CEO Masayoshi Son said in a statement. The fund seeks leading innovative firms that use technology to improve people’s lives. “Flipkart is doing that every day.”

Previously, SoftBank had independently invested in Snapdeal, Flipkart’s smaller rival, but it has been pretty much of a washout. It began backing Snapdeal in 2014 and invested a total of $900 million for a 33% stake. But with Snapdeal struggling to make a mark in a market dominated by Flipkart and Amazon, SoftBank pushed for a merger between Snapdeal and Flipkart for months. Its $2.5 billion investment in Flipkart happened only when it was clear that the merger would not go through.

Will SoftBank be interested in investing in Uber as well to clean up the ride-hailing market in India? Misra said that if the fund decides to acquire a stake in Uber, the objective would be to “get the advantage of the economies of scale and the dominance” that comes with it. Misra is clear that SoftBank is investing to win: “In [the] internet, the winner takes all. You have to emerge as the winner or merge with the winner. There is no room for [a] third.”

“A fund like this backing India shows a high level of conviction in the market.” –Niren Shah

Vote of confidence

The Vision Fund’s investment in India is a big vote of confidence on its internet sector and provides a much-needed boost. The market is coming of age and strategic investors are moving in. Sudhir Sethi, founder and chairman of IDG Ventures India, a Flipkart investor, calls the Vision Fund’s investment a “game changer” that has “increased the confidence of every single investor in the investment supply chain in the internet space in the country and has hugely revved up the market.” It is already driving up investment levels in smaller companies.

K. Ganesh, serial entrepreneur and partner at entrepreneurship platform, calls these internet investments “the best news.” He says that online startups in India have huge potential for growth: “We have only scratched the surface with the first 30 million to 50 million serious users. The fact that the world’s leading investors are bullish and betting on this market means we will get to see world class service levels in the coming years in India for the consumer. It will mean more employment and better digital infrastructure to support these transactions.”

“The arrival of such a deep-pocketed investor is a sigh of relief.” –Arun Natarajan

Niren Shah, managing director of Norwest Venture Partners India, says that “a fund like this backing India shows a high level of conviction in the market. We all know that the market is there but it takes a lot of conviction to invest here knowing that the [cash] burns will still be high over the next few years and profitability is yet to come.” Adds Arun Natarajan, founder of information and analysis firm Venture Intelligence: “Given how the future of so many of the local internet and mobile unicorns was hanging in the balance in 2016, the arrival of such a deep-pocketed investor is a sigh of relief.”

Mixed track record

However, SoftBank’s investment choices in India evoke mixed views. Some experts believe that unlike in China, SoftBank’s Son has found himself on the wrong side in India. They cite (online real estate) and Snapdeal, SoftBank’s two failed investments, as prime examples. They also say that unlike China’s Alibaba, Son’s biggest proposed bets in India are all late-stage companies, which are too expensive at current valuations.

“SoftBank’s record in India is weak relative to its record in China. They were a bit too aggressive with some of their early investments like Housing and Snapdeal. The valuations they gave and the funding provided were premature in these cases,” says Kartik Hosanagar, Wharton professor of operations, information and decisions. “In my opinion, the investments in Flipkart and Ola will be defining investments for SoftBank. If they work out, India could well be an excellent new market for SoftBank. If not, India will prove to be a costly experiment.”

“In my opinion, the investments in Flipkart and Ola will be defining investments for SoftBank.” –Kartik Hosanagar

Indian e-commerce pioneer K. Vaitheeswaran and author of Failing to Succeed, describes SoftBank’s track record in India as “modest and disappointing.” He says that “Housing, Ola, Oyo, Snapdeal and Paytm have all sucked in huge amounts of cash from SoftBank and other investors and none of them have established clear market leadership or put themselves on a clear path to sustainability. Two have imploded spectacularly.” Neil Shah, research director at technology market research firm Counterpoint Research, notes that “Softbank has been a bit aggressive and short-sighted with its investments, unfortunately betting on big names rather than backing the dark horses.”

But others think it is too early to judge SoftBank’s performance in the country. Ganesh notes that typically, funds have a long tenure of around nine to 10 years before their performance could be judged adequately. “One or two big wins can change the picture completely. That’s the nature of venture capital/private equity fund economics. Given its track record globally, long term thinking and size of the fund, SoftBank is in a unique position to be able to take positions in the Indian market, which is still nascent in the internet, e-commerce sector.”

While Ganesh concedes that “there might have been some wrong calls or over-paying during the euphoric 2014 to 2015 timeframe,” given that “more than 90% of the market cap in internet and e-commerce is yet to be created,” SoftBank’s investments in India could not be considered as late stage. Moreover, “just one exit in Flipkart or Ola will compensate for all the other losses,” he adds. Natarajan agrees. He points out that other than the 2011 investment in InMobi, SoftBank really started to invest in the Indian

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