What the Softbank-WeWork Debacle Means for India

Sashi Reddi, Founder & Managing Partner, SRI CapitalWhen WeWork’s valuation went from being undervalued at $40 Billion to being overvalued at $8 Billion in a matter of two weeks, it left many of us in the investor community scratching our heads. Clearly, this was a massive blow to WeWork but an even bigger blow to Softbank and its reputation as a savvy investor. It turns out that after having invested more than $10 Billion in WeWork, Softbank had less than a 30 percent stake in the company and no management control. Softbank went from being the “god” of private equity to looking like a firm that had no clue.

There’s been a lot of analysis in all the western media and financial press, but not enough analysis on what it means for India. After all, Softbank and the Softbank “family” (that is, Alibaba and Ant Financial) are the largest investors in India. In 2014, when Masayoshi Son, head of Softbank, said he would invest $10 Billion in India in 10 years, most of us thought he was just painting a big picture and not making a literal commitment. It turns out he was under-promising. He has invested that amount in just five years in what looks like an investing frenzy. Here’s a list of Softbank’s significant investments in India:

Ecommerce: Flipkart, Snapdeal, Paytm Mall, FirstCry
Ride hailing: Ola and Uber
Logistics: Delhivery, Grofers
Others: OYO, Policy Bazaar

The most visible of Softbank’s investment strategy has been what it has done in the ride hailing space.
It has invested in every credible ride hailing company almost as if at the end, it does not matter who wins, Softbank will definitely be the winner. This is an example of where its financial muscle sets the strategy. Then there are sectors where they may be significant platform players like Amazon and Google. A great example is ecommerce where Amazon dominates. Softbank has invested in almost every serious player in the space so that it maximizes its chances of success against Amazon. Again, flexing its financial muscle to make sure that whatever the top platform player does not corner, will go to a Softbank funded company.

The sectors that I am most interested in discussing are those where there is no platform player for Softbank to fight against. Let us consider online insurance in India for example. A bet by Softbank in Policy Bazaar all but assured that no other player in that space will get any significant backing to compete. Hence one must wonder about the future of Turtlemint and Coverfox. Similarly in the budget hotel space, Softbank made a massive investment in OYO. Very credible players like Fab Hotels and Treebo are now shut off from further serious funding because of the fear that Softbank generates. Similarly, can anyone think of who the #2 is in children’s ecommerce after FirstCry.

What all this means is that the power of Softbank has been its image as a savvy investor with unlimited money. And that brings up back to the WeWork debacle. What WeWork has shown is that Softbank is neither savvy nor does it have unlimited financial resources. Softbank was already struggling to raise its second Vision Fund and now after WeWork it is hard to picture even the Saudis getting on board and backing Masayoshi Son once again. So what does this new tarnished image of Softbank mean for India?

In those sectors where other investors have feared to tread such as budget hotels and online insurance and so on, we should expect to see a resurgence in investor interest and confidence in the #2 and #3 in each of those markets. So while Softbank has been wonderful for generating investor interest in India, the tarnished Softbank will also be wonderful in enabling other serious investors to get in and create competition in sectors that were considered “unfundable” due to the dominance of Softbank.

“The king is dead. Long live the king,” seems like an appropriate conclusion to the Softbank-WeWork story.