Several domestic companies haven’t met its “sweet spot” of investing in startups valued at $500 million to $2 billion, the report added.
“SVF (SofBank Vision Fund) investment teams remain active, but the pace of investment has inevitably slowed due to stricter investment criteria. Amid continued uncertainty, SVF investment companies are putting greater emphasis on strengthening unit economics,” said the BofA Securities report.
India is the third largest market for SoftBank after the US and China in terms of making investment deals.
The securities arm of BofA said, since the formation of its local team in the country post 2019, the investment behemoth has been focused on India-specific models, instead of global replicas, with valuation benchmarks shifting down from $5 billion to around $2 billion, and average cheque sizes being reduced to $100 – $150 million from $1 billion previously.
Further, as an evolution of its investment thesis, SoftBank has been typically closing deals with domestic startups five years before their public listing and is willing to hold its position even post the listing, as seen in companies like fintechs One97 Communications (Paytm), PB Fintech (Policybazaar), and logistics player Delhivery.
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“SoftBank is now looking to invest at a late-stage in India and typically underwrites five years before IPO. The company is also willing to hold a post listing. Overtime, we saw this investment approach also got replicated at global level,” said the BofA report. The investor has backed the likes of mobility major Ola, hospitality chain, Oyo, ecommerce companies Firstcry, Lenskart, and food-delivery platform Swiggy, from its first Vision Fund (SVF I).
Other players such as – banking and fintech infra providers, Zeta and Juspay; software providers, Whatfix, Iceris; social commerce player Meesho are some of the other companies backed by SoftBank Vision Fund 2 (SVF II) and represents a diversified investment thesis.
Diversified thesis and investment strategy
SoftBank’s Indian investment strategy’s basic approach conforms to SVF II ‘s management policy.
Specifically, SVF II is managed under an investment approach more focused on smaller-scale, early-stage, regional and sector diversification than SVF I, BofA noted.
“The company seeks to diversify risk in the fund portfolio itself by managing multiple funds with the characteristics of both SVF I with its mainly concentrated investments and SVF II with its mainly diversified investments. SoftBank Group‘s investment capabilities have steadily evolved from a single investment vehicle to a global multi-fund platform, including India,” added the report.
According to the report, Indian startups till now have resisted down-rounds. But risks remain for some companies. As many as 94% of SVF portfolio companies already had cash runways of at least 12 months at end-March 2023. More than 40% of overall companies are either close to or above break-even, added BofA in its commentary.
While the next set of investment opportunities are in Artificial Intelligence, clean energy, expectations of “first principles AI” companies coming from India are currently low with focus being more on “AI as extension of service” for the economy domestically.
SoftBank selling ownership
Over the past months, SoftBank has continued to divest its stake across its Indian publicly traded portfolio comprising of One97, Delhivery and PB Fintech. Earlier this month, it offloaded a 2% stake in One97, after selling a 4.5% stake in the company through block deals last year, bringing its total stake in the fintech major to 11.17% from 17.3% earlier.
In March, it sold a 3.85% stake in Delhivery for Rs 954 crore. In December last year, it sold a 5.1% holding in PB Fintech for Rs 1,043 crore.
“The investments from India are relatively small in the Vision Fund I and Fund II and don’t move the needle in a meaningful manner at the global level. As a result, SoftBank is not under pressure to exit out of its listed companies – Delhivery, Paytm and PB Fintech,” said BoFA Securities.
“Till date the SoftBank strategy appears to be opportunistically monetizing in accordance with its financial discipline. i.e. LTV below 25%.”
Even in private markets, it has partially exited out of some unlisted companies like Lenskart and Firstcry.