No shelter

Ousted CEO shows risks of SoftBank start-up splurge

Failure is an unpleasant fact for most start-ups. One in three new companies lose most of the capital that investors have put into them. SoftBank is a bit closer to that reality with Housing.com. The Indian property listings firm has fired co-founder and chief executive Rahul Yadav, six months after the Japanese conglomerate became its largest investor. It's a reminder of the inherent risks in a rapidly growing part of SoftBank's business.

Yadav was a liability and the board had no choice but to remove him. The 26-year old was in open conflict with his investors. In April, he wrote a resignation letter attacking the board as intellectually incapable, which he later retracted and apologised for. Then he pledged to give away his entire stake in the company - worth up to $32 million - to employees. Yadav also taunted some of the country's most prominent business leaders through his Facebook page.

Housing.com may benefit from Yadav's removal. But it will be harder for the company to succeed now that it has been forced to cut all ties to its founder. The fallout raises the broader question of how many of SoftBank's similar investments will deliver a positive return.

The Japanese company boasts of an impressive average 45 per cent internal rate of return on its internet company investments over the past decade. That includes its enormously successful investment in Chinese e-commerce giant Alibaba, where a total investment of only 10.5 billion yen ($85 million) is now worth $66 billion.

SoftBank is ploughing ever larger sums into start-ups. It invested $627 million in Indian marketplace Snapdeal in October. Last month, it bet $1 billion on South Korean e-commerce group Coupang. Yet, there is no assurance that bigger bets are less likely to fail. And SoftBank's returns on those that succeed are almost certain to be smaller.

Unlike most venture capital investors, SoftBank is a listed company. Its $70- billion market capitalisation owes more to its telecom businesses and its holdings in listed companies than to potential new hits. Yet, the drama at Housing.com underscores that SoftBank's start-up splurge is not without risks.