SoftBank's new mantra for success: Identify future stars early if you can

India office to help Vision Fund spot potential unicorns early to help it invest $100 mn in firm with $500-mn valuation

OYO, FirstCry, Delhivery, and now Grofers. 

After exiting Flipkart, SoftBank is picking up its next set of bets in India. After missing out on companies such as Swiggy and Zomato, it wants to identify future stars early and back them while they are half-unicorns.

“We would like to invest $100 million in a firm with $500-million valuation,” a senior SoftBank executive told journalists when the Saudi Prince visited India last month. Saudi Arabia invested $40 billion in SoftBank's $100-billion Vision Fund.

To identify companies early before they become too expensive, SoftBank has put its feet on the ground. Last November, it hired Sumer Juneja as India head from venture capital (VC) firm Norwest Venture Partners. VCs are good at picking up start-up winners. 

In December, it hired ex-Facebook India head Kirthiga Reddy as partner for the $100-billion Vision Fund. Recently, it led a $350-million funding into logistics company Delhivery, co-investing with the Carlyle Group and Fosun International.

SoftBank would have liked to back food delivery firms and others like Freshworks, but their valuations were too steep by the time they came on its radar. It did not repeat the mistake with firms like OYO and PolicyBazaar, and invested early.

Earlier this month, the Vision Fund also invested $60 million in grocery delivery app Grofers. The company’s biggest bet after Flipkart was hotel aggregator OYO, in which it now holds a 49 per cent stake.

“SoftBank is bullish on India and is backing companies that can be category leaders,” the CEO of a VC firm said. Despite Grofers and Delhivery deals, the CEO said SoftBank was going slow in India, especially after the pushback it got from investors on WeWork. In January, it cut a planned investment in WeWork to $2 billion from $16 billion after pushback from Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment, who contributed almost two-thirds of the Vision Fund’s pledged capital.

SoftBank met both Zomato and Swiggy, sources said, but no deal was reached. This shows that SoftBank was not willing to invest at high valuations. In fact, the West Asian investors of Vision Fund have complains on investing at high valuations.

Vision Fund expects a bunch of its portfolio companies, including a few from India, to tap the public markets by the end of next year.