Japan’s SoftBank Corp, one of the top investors in India, is shutting down its venture capital arm, moving the company away from making a bunch of small bets on early-stage companies toward bigger investments in fewer, but more mature, businesses, according to a report by Re/code.
The strategy shift comes as Nikesh Arora, President at SoftBank, looks to focus SoftBank’s investment strategy on acquiring large minority stakes in breakout privately-held businesses and backing them through a sale or IPO.
“As we look at the future for the next tens of years, we believe that the way to preserve the long-term sustainability of SoftBank is to be large, minority shareholders of many assets. We believe that it’s less crowded in the large-check marketplace,” Arora told Re/code.
While SoftBank may occasionally invest in early-stage companies in the future, Arora said that would be “more of the exception than the rule”.
The report also points out that the SoftBank Capital investment arm will not raise any new funds going forward and that future SoftBank investments will come from the balance sheet of the parent SoftBank Corp.
SoftBank recently invested US$1 billion in Korean mobile commerce company Coupang and was one of the early backers of Chinese giant Alibaba.
Impact of the new investing strategy
The Japanese company has been bullish on Indian tech startups and has invested more than US$1 billion in Snapdeal, Ola and Housing over the past few months. SoftBank Chairman and Founder Masayoshi Son pledged to invest US$10 billion in Indian Internet and technology startups over the next decade, and last month, the company said it was partnering with Bharti Enterprises and Foxconn Technology to invest US$20 billion in solar energy projects.
It remains to be seen as to when the company will put this strategy into practice, but as of now, the Japanese giant seems to be interested in early-stage companies as it is in talks to invest US$100 million in budget accommodation startup Oyo Rooms.
It is quite contrary to the strategy adopted by other VC firms such as Sequoia Capital and Tiger Global, who have shifted to early-stage deals looking at the large adoption of Internet-based services in the country. They are aggressively backing young tech companies which have the potential to scale fast.
In emerging markets like India and Indonesia, rising Internet penetration is fuelling the growth of tech startups and VC firms are investing in early-stage companies to own a part of the next unicorn. This strategy will have lower risk as compared to investing in high-risk early-stage startups but, not to forget, it was that early-stage investment in Alibaba that reaped record returns for SoftBank.