We have seen the tech investment world going up’s and down’s these days, but nothing makes more news than SoftBank. The Japanese internet group’s frenetic deal-making pace over the past few months, along with its big secondary purchases in internet companies, have made it the new IPO for many hugely funded tech startups and provided partial cash exits to their early investors.
While this is a global phenomenon, but from a India perspective two of India’s largest internet firms – Flipkart and Paytm – and the amount of cash their largest investors have mopped up recently. Tiger Global at Flipkart and SAIF Partners at Paytm are taking home around $1.5 billion collectively, courtesy Masayoshi Son, the maverick billionaire founder of SoftBank, a record sum by Indian standards.
The cash distribution among Flipkart’s early backers is yet-to-be finalized, which means other venture capital (VC) funds like Accel Partners may also get a part of the secondary money. These liquidity events are significant for India where venture funds have seen exits in only dribs and drabs, even after more than a decade of the industry being around.
The cash these investors are stacking up comes at a time when the venture capital industry in India is in its most challenging phase. With significant bets like the one online marketplace Snapdeal coming a cropper, and sentiments around tech investing sobering, many funds are staring at dismal returns on their investments. “It’s great for both early investors and founders to get exits through SoftBank. When it comes to founders, it reduces pressure on them to provide other types of exits in the form of M&A or IPO if a new investor buys shares from early investors. However, there is a concern with SoftBank owning too much in a company and how that would play out in the long term,” posited an Indian venture investor.
But SoftBank dominance may concern investors Concerns about SoftBank emanate from the large amounts of capital it can plough, the horizon of the investment and the return expectations.
“Other shareholders worry what this would mean with them (SoftBank) having too much ownership and hence control. But because there is no other source for exits and Indian investors are under pressure to show liquidity, this is the best option available,” the person cited earlier said.