Fuelled by petro-dollars, cheap Wall Street debt and pixie dreams of multi-billion dollar valuation pops, Softbank and its unicorn hunter founder Masayoshi Son was the only bid in town for most young startup founders.
But with snowballing setbacks and losses, that bid is gone. Even the hunter is now being hunted. Son is responsible to his investors as he and his empire is on the brink of implosion. But the human cost to our homegrown start up ecology is far more serious. He should be accountable for the havoc, distress and financial stress that Softbank has caused on his investee companies and many young entrepreneurs who got seduced into the Son web and may never be able to extricate themselves from in.
Its evidently clear that forcing them to grow at higher rates was neither wise or appropriate as it only added to their cash burn. His irrational exuberance to create global champions out of a We Work or Oyo completely distracted impressionable minds resulting in massive business deviations. Some like Ritesh Agarwal made it worse for themselves by raising indebtedness by billions at their own personal levels.
And now as a novel virus has inspired a debilitating economic lockdown world over, Son is financially stranded. His hyperbole around ushering a clean energy revolution in India and Saudi Arabia also lie in shambles. A harsh reality check has triggered massive divestments that might even singe Vision Fund’s poster boys. In this hasty retreat many have already lost their jobs. More will follow.
Point is, if you fritter away money – Softbank promised to deploy $10 billion in just 10 Indian companies. Five times as much in 1/10th as many companies that traditional VC peers like Tiger that were big India bulls had done before — the discipline of investing goes away. Bootstrapping companies swayed by the story of scale forgot to value money early on. The Softbank tap seemed unlimited and free. Their epitaph got written faster than they raised seed money.
Soon chunkier bets in segment leaders like Flipkart, Paytm, Delivery replaced the earlier thesis of drip funding in early stage companies. The entire cornerstone of business hinged on overcapitalising them on the assumption that capital creates a disproportionate moat to help win against competition.
But with excess capital comes over hyped valuation as founders are equally hyper sensitive towards diluting their equity in their own ventures. What followed – one that has played out a several times hence – has been an overzealous quest to conquer the world overnight as the Indian operations and market size ceases to be enough to justify those numbers or valuations. Oyo succumbed. Lenskart so far, hasn’t.
It can perhaps be argued in favour of burning cash to gain heft, market share, change popular habits to disrupt the way we live, eat, network and play but fundamentally to get off the ground, good technology companies do not guzzle capital.
PayTM entities have so far raised 48 times more money just from Son compared to what Google ever did from VCs pre-listing, data from Crunchbase, Tracxn Technologies and Paper.VC show.
Till date logistics company Delhivery has raised 6 times more money (again from Softbank) than what Whatsapp ever did from its sole backer Sequoia. Ola Cabs have taken 7 times more money from Son than Salesforce ever did from its VCs. The Valley poster boys have always been best in class and made more money while Softbank’s gene pool has got pummelled.
By doubling down on the prized portfolio through frequent follow on rounds has also always seen valuations ratcheted up without any third party validation.
Eager for a sequel of the oversized, nearly $100 billion Vision Fund, Softbank has always been keen to hit the fund raising mode in a hurry but it is near impossible to show bumper exits every 2-3 years. But if time is a key currency, then what you are left with notional profits and a constant urge to show mark ups across the portfolio. And its easiest if you are marking up yourself.
What is most baffling however is the sheer reluctance to take control of its portfolio companies that totally ran amok like cowboys with zero attention to governance – both financial and corporate. It allowed founders to create opaque corporate structures to take money out of the business or trip up like Oyo after mindless expansions.
Once upon a time several made millions jumping on to this gravy train. Founders and their top management became millionaires overnight. Middling venture capitalists raced to exit their investments to Softbank and became rich too even as they stopped doing what they were meant to do first hand – hand hold fledgling companies. But the problem was even as a handful made merry, the larger start up eco-system in India got gutted.
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