Nearly half of SoftBank's Indian portfolio companies are close to or above breakeven, according to a report by investment bank Bank of America (BofA). The report said that these companies did a "good job" in cutting costs materially in the last 6-9 months, as startups grappled with a funding winter amid a deteriorating macroeconomic environment.
The report highlighted that the cost-cutting measures resulted in reduced growth rates of 15-30 percent for startups, compared to their previous growth rate of 60-80 percent. However, the report also emphasised that these initiatives extended the companies' cash runways, with approximately 94% of SoftBank's investee companies having at least a 12-month cash runway by the end of March 2023.
Earlier this month, Moneycontrol reported that SoftBank's investee companies in India had cut costs between 50 and 75 percent over the last 12-15 months by implementing various cost-cutting initiatives. The Japanese investment conglomerate's portfolio companies in India have laid off more than 7,500 employees since the start of 2022.
SoftBank has been a prolific investor in Indian startups over the last decade, investing close to $15 billion. Most of these investments have happened in the recent past.
But the investment conglomerate has changed its investing approach, particularly since 2019, when it established an on-ground team in India, its third-largest market after the US and China. The BofA report also argued the same.
SoftBank started investing in more India-specific models since 2019 and not the global replica models, the BofA report argued. The company also changed valuation benchmarks while investing and started coming in at startups valued at around $2 billion, from $5 billion earlier.
SoftBank also slashed cheque sizes to $100-150 million from $1 billion previously. Subsequently, the Japanese investment conglomerate's stakes went down to sub-25 percent with one board seat from over 40 percent before.
SoftBank also started investing in more diverse sectors and started working collaboratively with the PE/VC (private equity venture capital) ecosystem in India, the BofA report said. It also made investments in SaaS (software-as-a-service) companies, a sector, that did not excite the Japanese investment conglomerate previously, the report argued.
SoftBank has three of its portfolio companies publicly listed in India. The Japanese investor has been trimming stakes in the three since the lock-in period ended in November 2022. According to a report by Bank of America (BofA), SoftBank has netted $1.05 billion by selling stakes in Delhivery, PB Fintech, and Paytm since their listing.
As of March 2023, SoftBank's stake in Paytm is down to 12.88 percent from 17.45 percent in November, when the lock-in period ended. In PB Fintech, the Japanese investor's stake is down to 5.08 percent from 10.16 percent in November, while that in Delhivery is down to 14.56 percent from 18.48 percent.
SoftBank has invested in close to 30 companies in India to date from its two vision fund investment units. Of these, more than 20 are unicorns or startups with over $1 billion in valuation. SoftBank was one of the most aggressive and active investors in 2021, a landmark year for India's startup ecosystem in terms of funding.
But since the start of 2022, the investment company has been extremely cautious after it reported massive losses on its investments globally. In 2022, the company slashed India investments by more than 80 percent, while this year, it is yet to get off the mark.
"In the last 12 months, Softbank has not made any big investments. This is because given funding winter and slowing consumption, most startsups have not scaled up well, as a result, not many companies are available for investment in Softbank’s sweet spot of $500 million$2 billion," said the BofA report.
Earlier this week, a media report said that the Japanese investment conglomerate is in talks with five companies for potential investments.
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