‘SoftBank could invest over $4 billion in India’
- India, Misra said, remains an important target market for investments from the Vision Fund, especially in the context of widespread technology-driven disruptions expected across the economy in the wake of the Covid-19 pandemic.
Masayoshi Son-led SoftBank Group Corp. could put more than $4 billion to work in India in 2021 across myriad technology bets, including software as a service (SaaS), B2B marketplaces, e-commerce, health-tech and ed-tech. The investments will come from the Japanese company’s Vision Fund 2, which has an investment outlay of up to $30 billion for the current calendar year.
“In India, we’ve already invested more than $2 billion in 8-9 companies in the first five months of this year...a few deals are yet to be announced. And we will continue to invest if we find the right opportunities. We anticipate investing a similar size in the remainder of this year,” SoftBank Vision Fund chief executive officer Rajeev Misra said in an interview from London.
Among its new bets this year, Vision Fund 2 led a $300 million investment in Meesho in April, catapulting the social commerce platform’s post-money valuation to $2.1 billion. More recently, it led a $250 million funding round in Zeta, valuing the banking technology firm at $1.45 billion.
India, Misra said, remains an important target market for investments from the Vision Fund, especially in the context of widespread technology-driven disruptions expected across the economy in the wake of the Covid-19 pandemic.
“I believe that SoftBank is the largest investor in India’s digital economy and will continue to be. We have invested about $14 billion in India so far. The team on the ground is expanding. I think the post-pandemic disruptions in India will last because behavioural changes are sticky. We have seen a material improvement in the unit economics of our companies. A lot of global companies will come out of India, in SaaS, biotech, edtech, etc., over the next few years,” he said.
SoftBank currently has a team of about 10 people in India for Vision Fund. Former Norwest Venture Partners top executive Sumer Juneja leads the fund’s investment team here, while former Google India interim head Vikas Agnihotri leads the operating team, which assists portfolio companies across functions, including building linkages to global markets.
The investment momentum in India is reflective of a similar momentum that the firm anticipates globally. To that end, the Vision Fund 2 corpus, Misra said, remains “fluid” at present. In May, it upped the target corpus of the fund to $30 billion from $10 billion in November last year. SoftBank Group Corp. is currently the sole investor or limited partner in the fund. “We have enough capital within SoftBank. We sold a lot of assets last year. We also have a lot of cash coming back from our first fund as we liquidate assets and recycle them into our second fund,” he said.
India-born Misra is now among the most high profile figures in the world of investing due to his perch at the top of the largest technology investor in the world. In FY21, SoftBank posted $46 billion in profit, the largest in the history of any Japanese company and the third-largest profit declared last year in the world. Of this, $37 billion came from the Vision Fund.
It’s something of a reversal of fortunes for the fund, which had attracted damning criticism after its high-profile investee company WeWork failed to mount an IPO it was targeting at $47 billion. But the accelerating digitization due to the pandemic has paid rich dividends with a string of blockbuster IPOs among investee companies such as food delivery platform Doordash and South Korean e-commerce player Coupang, as well as the rally in the shares of public companies such as Uber and digital realtor Opendoor.
The second Vision Fund has invested in 95 companies, already outpacing the 92 companies it backed from the $100 billion Vision Fund 1 launched in 2017. Apart from Meesho and Zeta, the second fund’s portfolio in India includes Bengaluru-based edtech startup Unacademy and omnichannel eyewear brand Lenskart.
In addition, advertising technology company InMobi, which plans to list in the US by the end of this year, is now a part of the Vision Fund 2 portfolio. The India-born company was SoftBank Group’s oldest investment in India, pre-dating Vision Fund 1 and 2.
The investment hypothesis for the Indian market also mirrors the global Vision Fund mandate. “Our hypothesis, when we set up the first fund in 2017, was that the AI (artificial intelligence) revolution will be much more rapid than the internet revolution. The SoftBank Vision Fund should look to invest in those companies that will disrupt, that will use AI and data sciences to disrupt existing brick-and-mortar businesses that are being run inefficiently,” he said.
Specific to artifical intelligence as a catalyst, SoftBank expects the maximum impact or disruption to take place in two sectors—healthcare and education. “In healthcare, if you look at the value chain, it has a few components. The first step is to read the genetic code. Then comes diagnostics. The third where work has been done and is becoming cheaper is therapeutics. The fourth part of the value chain, which will come up in the next two years, is personalized or targeted medication. We have made about 20 investments in that area. The fifth frontier, which is still 5-6 years away, the holy grail, is to do gene editing and gene rewriting,” Misra said, adding that the company is currently evaluating a few companies in this space in India as well.
The Vision Fund 2 investment strategy has also been more measured compared to Fund 1. While it continues to lead investment rounds for new bets, in follow-on rounds, it has been comfortable participating as a co-investor. “In 2020, 24-26 of our companies raised follow-on funding, and we didn’t lead the rounds... we let someone else set the valuations,” he said.
Even with respect to new investments, the presence of a large team on the ground has allowed it to engage with entrepreneurs over an extended time period and building relationships before doing a deal. “We’re not early-stage investors. We don’t write $10-15 million cheques. So, we watch them, and when they are raising $50-100 million, that’s when we come in,” Misra said.