Pension and sovereign wealth funds are loaded with money, risk appetite and a willingness to wait for long. While SoftBank is still dominant, the late-stage funding market no longer seems to be its domain.
Bulge-bracket venture capital funds such as SoftBank used to lord over the funding landscape for late-stage startups in India. Now, pension and sovereign wealth funds are moving in, loaded with money, risk appetite and willingness to wait for long.
Pension fund Canada Pension Plan Investment Board (CPPIB) and sovereign wealth fund Qatar Investment Authority joined education firm Byju’s $300-million fund-raising across two rounds in December 2018, and are in talks for another $300 million investment.
Online pharmacy PharmEasy is currently raising $130 million from Singapore government-owned Temasek, and Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ), said two people aware of the matter, while e-commerce logistics firm Delhivery is raising $150 million from CPPIB at a valuation of $1.5 billion, said another person directly aware of the matter. All three spoke on condition of anonymity.
“The latest investments are in stark contrast to late stage funding in Indian technology startups in 2014, when the first breed of domestic unicorns began to appear,” said an investment banker, who declined to be identified. “Those days, every large deal had one common name and it was Japan’s SoftBank, who could write large checks taking bets in InMobi, Snapdeal, Ola, Flipkart and Paytm, among others,” he added.
Till 2018, just three startups—Snapdeal, Shopclues and Ola—had raised a combined $400 million from non-VC sources, including Canada’s CPPIB and Ontario Teachers Pension Plan Investment Board, and Singapore’s GIC, according to data from Venture Intelligence. But those days are far behind and, as things stand today, a startup seeking upwards of $100 million in capital has many more sources of funding, with pension funds and sovereign wealth funds emerging as the newest source of large capital.
“Pension funds and SWFs increasing tech investments is a global trend because they want exposure to good opportunities. They also want to generate benchmark beating returns (alpha), which is aided by good exit multiples from tech companies,” said Karan Mohla, partner at Chiratae Ventures (earlier known as IDG Ventures), an investor in Myntra, Policybazaar and Lenskart, among others.
While SoftBank continues to be the 800-pound gorilla in funding rounds of around $500 million, it is facing competition from pension and sovereign funds. PharmEasy, for instance, had also held discussions with SoftBank, Mint reported in March, but it did not result in a deal. PharmEasy declined to comment.
SoftBank’s large cheques also come with strings attached, said investors and entrepreneurs Mint spoke to.
Its terms generally include taking majority shareholding as high as 45 percent in its investee companies, having the highest liquidation preference (in case the company shuts down), and, sometimes, even having a debt component in its investments, two entrepreneurs who recently approached SoftBank said on condition of anonymity.
“We never comment on speculation,” a SoftBank spokesperson said in an email, in response to a detailed query.
Sovereign wealth funds and pension funds “potentially have a longer holding horizon, and they come in a few years before a possible liquidity event. Although they are coming in late from the startup’s point of view, from a fund perspective, these investments are relatively early,” Mohla added.While SoftBank is still dominant, the late-stage funding market no longer seems to be its domain, with private equity funds like General Atlantic, Carlyle, TPG all betting on technology firms, besides hedge funds such as Coatue Management, and Tiger Global Management.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.