“Why o why? That’s a big setback for Indian startup ecosystem,” Paytm founder and CEO Vijay Shekhar Sharma’s wailing tweet, succinctly sums up the reaction in India to the unexpected news of Nikesh Arora’s abrupt exit from SoftBank.
SoftBank has been a prolific investor in Indian startups for nearly two years, and Arora’s exit couldn’t have happened at a more inopportune moment. The e-commerce, or broadly the consumer internet, engines in the world’s fastest growing economy have been searching for a new investor with ability to write big cheques, of late. Bulge-bracket investors have shied away from placing fresh bets on India’s aggressively valued startups, some of which have been marked down already.
Arora, riding on incredible media hype, played a big role in boosting Indian startup valuations when he struck back-to-back deals in 2014. Arora and Tiger Global’s Lee Fixel, the top shareholder in Flipkart, who has invested in about 25 startups, were fueling Indian unicorns (privately funded companies valued at $1 billion or more) with their investment binge. Both slowed down late last year as frothy valuations and concerns about the real base of India’s e-commerce users tripped global investors.
“The way he (Arora) played up the market gave some of us self-doubts about our own investment thesis,” said a partner with one the US-based venture capital funds on condition of anonymity.
Arora’s exit could pose difficulties for online marketplace Snapdeal on which SoftBank has placed nearly $1-billion bet. Sources said Arora had offered to support Snapdeal with quarter-on-quarter investments in a bruising e-commerce war with two formidable rivals, Flipkart and Amazon. The troubled real state portal Housing.com is seeking a buyer after its founder Rahul Yadav exited following a boardroom spat. Grofers and Oyo Rooms (where SoftBank may lead a new round) are still work in progress. Taxi hailing service Ola may be the bright spot in SoftBank’s Indian portfolio, as the Chinese peer Didi Kuaidi strengthens its worldwide anti-Uber alliance through investments.
A section of the venture capitalists now wonder whether SoftBank founder Masayoshi Son will allow his most storied discovery, Jack Ma of Alibaba, to take lead in chasing Indian consumer internet story. India is proving to be a far more challenging market for internet entrepreneurs, where operational management expertise is crucial in steering high-profile investments. This could lead to a more synchronized play between SoftBank and Alibaba going forward, sources added. Alibaba’s current Indian investments include 40% stake in digital payments and commerce platform Paytm and a 5% stake in Snapdeal.
Son had mandated Arora to find the next Alibaba. The jet-setting Arora had a $3 billion annual war chest to invest globally, though the former Google executive’s focus remained on India until recently. But Arora’s sudden exit may force SoftBank to change course in India.
“I won’t be surprised if they take more time to write any new cheques, at-least in the immediate future,” said a fund manager who did not wish to be named. Kashyap Deorah, a serial entrepreneur and the author of The Golden Tap, the story of the hyper-funded Indian startups, said that SoftBank would look to consolidate power at boardrooms of existing companies given the substantial capital invested in them. The Japanese investor had burnt fingers when it wrote down $200 million investment in ad tech startup Inmobi, which happened before Arora stepped into SoftBank.
“Nikesh or not, tourist investors like SoftBank and Tiger will realize India is not as fertile as China where they can fly in, plant startup seeds and watch them grow from a distance. In a way, the party unravelling faster is better since it is better to fail fast and early in the startup world,” Praveen Chakravarty, an early stage investor, and a co-founder of Mumbai Angels, argued. Alexander Mogilny Authentic JerseyShare This