Bull run for private technology funding market coming to an end: Softbank's Deep Nishar
Bengaluru: Japanese investment group SoftBank is changing tack, after its $100 billion Vision Fund’s high-flying bet in office space sharing startup WeWork imploded recently.
The investor has asked portfolio companies, including the ones in India, to aim to turn in profits, and stop chasing growth for the sake of growth, a senior executive told ET.
SoftBank has deployed $10 billion across Indian startups, such as Paytm, Oyo, Ola, among others, of which $8 billion has come from the Vision Fund.
Deep Nishar, senior managing partner at SoftBank, told ET that the bull run for the private technology funding market was coming to an end, which is why the Masayoshi Son-led conglomerate was now telling founders to conserve capital and focus on the right parts of the business.
This is a huge shift for SoftBank, which has plowed a slug of capital from its Vision Fund globally across loss-making startups.
SVF, which is in the market to raise its next fund, has been held responsible for ratcheting valuations of startups to show paper gains for SoftBank.
Nishar said the debacle at WeWork, which SoftBank bailed out with a $9.5 billion cash injection, was an extreme case of dissonance between private, and what would have been its public market valuation.
He said SoftBank helped the Adam Neumann-founded startup with its governance and processes, even as its valuation sunk from $47 billion to $8 billion over the past month.
“There are other companies, some in our portfolio and some outside, which also went public and saw contraction in value from their last private funding round. In this case, there were bankers who were telling you what we netted out at. But as the S-1 (an SEC filing by companies intending to go public) was filed, a variety of things happened and the public markets saw other issues with the company,” Nishar said.
SoftBank group’s Marcelo Claure was appointed WeWork’s executive chairman, with the Japanese investor now holding 80% in the embattled company.
Nishar, best known for his stint as LinkedIn's product head and helping the professional networking site scale up its membership exponentially between 2009 and 2014, is a well-respected name in Silicon Valley, with more than two decades of product expertise. He focuses on enterprise, deep-tech and biotechnology investments at the Tokyo-headquartered SoftBank.
Guardant Health, Slack, 10x Genomics, Vir Biotechnology — which went public this year — are among the 14 companies in his portfolio.
All these companies were profitable for the group, he said.
“We will be in the money multiple times over because of the blended price of the shares we hold in them compared to their public market price,” he said.
SoftBank has sold its initial position in Guardant Health, a blood tests developer that has a market cap of $6.3 billion. “They provide a nice balance to the portfolio as you don’t want to be only one sector focused. These are also the next frontier of where technology is moving,” Nishar said.
Talking about the largely disappointing technology Initial Public Offerings this year and the reliance on private capital for startups, Nishar said companies have to be able to showcase at least 8-10 quarters of continuous growth and have good visibility before starting to prepare for a public float.
“You cannot be unpredictable and flying blind, then you have a big challenge. Public market investors want you to be stable, you can’t be revising estimates,” he said.
To counter this uncertainty, companies keep raising more private financing as they do not have the visibility for the future.
“Private markets have been pricing companies higher because we have been in a 10-year bull market. So, it worked okay if you invested in something five years ago and it went public three years ago. Now clearly, the bull market is running out of steam and multiples are compressing again. So, people who invested in the last two years are going to get caught a little flat-footed. Not because they were making incorrect decisions at that point in time but markets have changed for the worse,” he said.
With many SoftBank funded firms still clocking huge losses, the expectations around profitability seem farfetched.
Nishar, however, said that a lot of the first-generation internet startups catered to the top layer of customers in India, which is changing rapidly, and with that monetisation will become more achievable.
The Indian startup ecosystem is maturing, more companies are being formed to cater to the Indian problem, he said.
For example, Grofers has seen its margins grow on the private label business by 10-20% every month. As margins get better, these businesses will make money, he said.
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