SoftBank has invested more than $15 billion over the last ten years in Indian startups. Most of these investments were made recently.
The investment giant has changed its strategy since it established a team on the ground in India in 2019. India is its third largest market, after the US, and China.
A report from investment bank Bank of America shows that SoftBank has started investing in models which are specific to India rather than replicas of global models in 2019. The company's investment criteria has changed. It no longer invests in startups worth $5 billion, but rather startups worth around $2 billion.
SoftBank also reduced the amount of cheques from $1 billion down to $100-150 millions. SoftBank's shares, a Japanese investment conglomerate, were reduced from more than 40% to 25% and one board member.
According to the BofA report, SoftBank began investing in more industries and collaborating with India's PE/VC ecosystem. It also invested in SaaS (software-as-a-service) firms, a sector that had previously bored the Japanese investment company.
SoftBank is currently looking to invest in India late, and normally provides underwriting five years before IPOs. According to a report by BofA, the company would also be willing to host an after listing.
How does the portfolio do?
In addition, the research note stated that almost half of SoftBank’s Indian portfolio companies were near or above breakeven. The BofA report noted that startups had to deal with a funding winter and a worsening macroeconomic climate in the past 6-9 months. These companies also did "a good job" of cutting costs.
The report states that the cost-cutting measures have reduced growth rates for startups from 60-80% to 15-30%. By March 2023, 94% SoftBank investees had cash runways that lasted at least 12 month.
SoftBank has three portfolio companies listed in India. The Japanese investor has decreased his holdings since the lock-in period ended in November 2022. According to the BofA report, SoftBank made $1.05billion by selling its holdings in Paytm PB Fintech and Delhivery after they went public.
Even in private markets, it has partly exited some unlisted companies like Lenskart, FirstCry and other similar ones.
Present and future perspectives
SoftBank's two Vision Fund investment units have invested in 30 Indian companies. Over 20 of them are unicorns or companies valued over $1 billion. SoftBank was among the most aggressive and active investors in India's startup eco-system in 2021.
The investment firm, however, has recently slowed its pace of investing in the country, having made only a few investments last year, and not writing any large checks so far this year.
Investors are pushing portfolio companies to be profitable, and this has had a severe impact on late stage startups.
SoftBank's Paytm ownership has dropped from 17.45% in November when the lock-in ended to 12.88% as of March 2023. The Japanese investor has reduced its holdings in PB Fintech from 10,16 percent in November, to 5,08 percent. Its stake in Delhivery also decreased from 18,48 percent to 14,56 percent.
"SoftBank made no significant investments over the last 12 months. The majority of businesses are not scaling up properly due to funding winter and slowing consumer demand. SoftBank invests in startups with a value between $500 million and $2 billion. Analysts at BofA say that SVF firms are more focused on improving unit economics, in light of the ongoing uncertainty.