Moneycontrol PRO
Upcoming Webinar:Prashant Shah explains ‘Irrelevance of Bull & Bear Markets for Success in Technical Analysis’. Register For Free!

Billion-dollar valuation on $10 million revenue: Decoding SoftBank’s unique bet on Zeta

SoftBank has invested $250 million in banking software firm Zeta, valuing it at $1.45 billion. Zeta has generated $10 million revenue so far, that too mostly from one client. So what justifies this valuation? Moneycontrol explores the factors at play, Zeta's potential, and SoftBank's strategy.

Mumbai / May 25, 2021 / 03:19 PM IST
Source: AFP

Source: AFP

SoftBank, the Japanese investment giant, invested $250 million in banking software firm Zeta this week, valuing it at $1.45 billion. At a time when India’s unicorn frenzy seems to be touching new highs, and huge funding rounds seem the new normal, it is easy to dismiss it as another large deal. But a few factors make Zeta a fascinating bet for SoftBank, and arguably its most unique in India so far.

Six-year-old Zeta wants banking apps to provide a seamless experience — deposits, loans, bill tracking and card payments — services which banks currently provide on clunky apps and sometimes only offline.  In its six years so far, it has earned a revenue of $10 million, said two people aware of the matter, requesting anonymity. Most of this revenue also comes from a single client — Sodexo, the French food services and facilities company, which uses Zeta to process its payments. Zeta declined to comment on the revenue.

The $1.45 billion valuation looms large over Zeta when other software startups from India have similar valuations with at least $30-50 million in revenue and dozens of clients. People close to Zeta say that it has to be evaluated slightly differently from regular software-as-a-service (SaaS) firms, which have boomed in India recently

Zeta, co-founded and led by serial entrepreneur Bhavin Turakhia, has been built unlike most other software startups in India. It has raised no money from external investors barring Sodexo, and even Turakhia’s previous businesses — messaging platform Flock, advertising firm and website aggregator Directi — haven’t raised money from external investors. Turakhia and his brother Divyank have netted over a billion dollars combined by selling and Directi in the last twenty years.

While Zeta has miniscule revenue currently and is not profitable, it is projecting a revenue of $250-300 million in the next three years, people familiar with the matter said. It plans to generate this revenue by providing its banking software to financial institutions all over the world. It already has partnerships with banks in the Philippines, Italy, Bangladesh, and Spain, in addition to a tie-up in the US and Brazil. 


In India, Zeta says its customers include HDFC Bank, Kotak Mahindra Bank, Axis Bank, IndusInd Bank, Yes Bank and RBL Bank. However, Moneycontrol understands that most of its contracts with customers in India and abroad haven’t generated revenue yet, and revenue so far has been mainly from Sodexo.

SoftBank is then effectively betting on these partnerships and contracts which haven’t fructified into money yet, but whose terms state that if Zeta does power these banking platforms all over the world, it could earn Zeta hundreds of millions. This is unlike any other bet from SoftBank India, or any other late-stage investor, whereby the time they are a billion-dollar company, they have dozens of companies who use their product and pay for it.

“Zeta is a different bet for SoftBank because the average value of an individual contract is far higher than your regular SaaS company,” said the person cited above.

“Your regular SaaS company can get $3-4 million from one company in the US. Zeta can get more than $50 million from a single bank. So SoftBank’s bet is that if Zeta can do this even for a dozen clients (and they want to do it for 300), they will have enough revenue to justify a multibillion-dollar valuation,” the person added.

In an interview with Moneycontrol, Turakhia acknowledged that the nature of his contracts is different from most other software firms. “That would be a very correct way of looking at it. In fact, I think at scale in the next 5-7 years, I would say the majority of our revenue would come from say 30-40 clients and some of the contracts can be worth $50-100 million at a time. Fully scaling may take 5 years but we are targeting top 300 banks in the world and each contract is worth a sizable chunk in revenue,” he said.

Zeta is SoftBank’s second SaaS bet in India, after it led a $100 million round in Mindtickle last year, valuing it at $500 million. The deal just about pre-empted the SaaS boom underway in public and private markets globally. It is a far more conservative bet than Zeta, investors say. While Mindtickle has many customers and stable revenue every month, Zeta is shooting for the stars, wanting to disrupt banking software- an area that has not seen innovation in at least two decades.

“Zeta’s valuation should also be seen in terms of what they are building and in terms of overall demand. SoftBank would have loved to do the deal at half the valuation (of $1.45b) but given Bhavin’s experience and the promise of the product, a premium on valuation is expected,” said another person aware of discussions, requesting anonymity.

Zeta’s ambitions are also similar to Marqeta, a US-based firm which provides payments infrastructure to companies. Marqeta provides debit and credit cards to company employees, expense management, and a backend for digital banks. Marqeta’s revenue in 2020 doubled to $290 million, and it is eyeing a $10 billion public listing this year

Large investors such as SoftBank take a portfolio approach, where each individual investment carries a different level of risk (with the caveat that technology investing carries some inherent risk). Investors hope that 5-10 years after these investments are made, on an aggregate level the risk makes sense and provides a return of 3-4 times on the total invested capital.

SoftBank India’s recent investments in logistics firm Delhivery, eyewear retailer Lenskart and Mindtickle have been more on the conservative side, compared to riskier and high-flying bets such as financial services firm Paytm and hotelier Oyo. But in Zeta, SoftBank has made a unique bet, at a valuation that seems bloated by general revenue metrics. However, the huge market that Zeta is addressing, its experienced founder and the funding frenzy gripping Indian startups provide more context to the valuation, and hence make it unique.
M. Sriram
first published: May 25, 2021 03:05 pm

stay updated

Get Daily News on your Browser
ISO 27001 - BSI Assurance Mark