SoftBank backs Flipkart with $2.5 billion to take on Amazon

Biggest investment ever in Indian internet space; helps Flipkart shore cash reserves to $4 bn

Leading e-commerce company Flipkart has raised around $2.5 billion from SoftBank Vision Fund, the $100-billion tech focused venture fund floated by Masayoshi Son. This makes the SoftBank Group a top investor not just in Flipkart but also in the entire e-commerce universe in India. The fundraising  pegs the value of Flipkart perhaps at an estimated $11.6 billion, the same as it was in April during the previous round, a source said. But there were others hinting at a down round that valued Flipkart lower. 

The latest announcement comes just days after SoftBank failed to merge Snapdeal, where it was the largest investor, with Flipkart. 

With this, SoftBank will control a little over an  18 per cent stake in Flipkart and will be a prominent member on the company’s board. Tiger Global, so far a leading investor in Flipkart, had taken control of the company by installing Kalyan Krishnamurthy as CEO. Tiger is now seeking a partial exit from Flipkart. So, out of the $2.5 billion being invested by the SoftBank Vision Fund, around $1 billion has been spent to buy off shares of hedge fund Tiger Global. The remaining $1.5 billion would be invested in the company.

The SoftBank investment is expected to step up Flipkart’s game against global rival Amazon in the country.

In an indication of competition heating up, Flipkart said in a statement on Thursday that its cash reserves (read war chest) were now more than $4 billion, which it would use to build and launch a private label brand for consumer goods to improve profitability. "As I've said earlier, the ball is in our court now. With razor-sharp execution, we must continue to transform commerce in India through technology and India-specific innovations. As the leader of the Indian e-commerce, the onus is on us to make its benefits reach the farthest corners of India," said Flipkart's Binny Bansal.

A top investor in telecom and internet space, such competition is not new to SoftBank. In fact, SoftBank Chairman and Chief Executive Officer Son is an early backer of Alibaba, the e-commerce company that dominates China, a market that Amazon has not been able to crack. The investment by SoftBank into Flipkart is part of the same funding round which saw the Bengaluru company raise $1.4 billion from Tencent, eBay and Microsoft four months ago. 

“India is a land of vast opportunity. We want to support innovative companies that are clear winners in India because they are best positioned to leverage technology and help people lead better lives," said Son in a statement. 

Earlier this year, the Japanese telecom major had written off $1 billion in Snapdeal, after it failed to grow and compete with Flipkart and Amazon.  Amazon has been arming itself for a fight to the finish and been stepping up its investments in India. Since the start of 2017, it has brought in $750 million, according to disclosures to regulators in the country.

"SoftBank's proven track record of partnering with transformative technology leaders has earned it the reputation of being a visionary investor. We're excited to welcome the Vision Fund as a long-term partner as we continue to build our business," said Sachin Bansal and Binny Bansal, founders of Flipkart.

In India, investments by Son, with SoftBank and the Vision Fund, is valued at over $6 billion, with stakes in taxi-hailing app Ola, hotel room aggregator Oyo Rooms, advertisement aggregator InMobi, a joint venture with Bharti Enterprises and Foxconn for setting up solar and wind farms, besides those in Snapdeal and Paytm.