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Late-stage investing is stuck as Indian companies still at 2021 valuations: SoftBank Vision Fund’s Sumer Juneja


Synopsis Juneja, managing partner, India & EMEA (Europe, Middle East and Africa) at SoftBank Investment Advisers, most of the top technology companies in India are well capitalised and have cut costs over the past year, leading to their unwillingness to opt for a down round. ETtech From Left: Sarthak Misra, investment director, Sumer Juneja, managing partner, India & EMEA, and Narendra Rathi, investment director, SoftBank Investment Advisers Indian late-stage startups with adequate capital are still sticking to their 2021 valuations, unlike their global counterparts which have undertaken significant cuts, deterring investors like SoftBank Vision Fund from deploying fresh funds in this market, a senior executive at the fund told ET in an interview. Sumer Juneja , managing partner, India & EMEA (Europe, Middle East and Africa) at SoftBank Investment Advisers (SBIA), who completes five years as its India head, said most of the top technology companies in India are well capitalised and have cut costs over the past year, leading to their unwillingness to opt for a down round where their valuation will be corrected.

A down round is when a privately held startup raises capital at a lower valuation compared with its previous funding. “The top 30-40 companies which are in our territory still have 2021 valuation and so we looked at them and passed. They are good companies, but we can’t pay the 2021 valuation,” Juneja said, adding that he expects the situation will change by next year in terms of valuations softening.

“Between secondary transactions, companies growing into their 2021 valuations, and realistic down rounds deal activity will see an upswing in 2024… There are a number of companies (including in our portfolio) lined up for IPOs, which will also act as a catalyst. For SoftBank, we will continue to focus on AI/tech first platforms. ” Late-stage deals have been negligible and no new unicorn was minted this year till last week when quick-commerce startup Zepto announced it had racked up $200 million at a $1.

4 billion valuation. The funding was significant coming at a time when most growth-stage funds have been chary due to the excesses of 2021. Zepto’s funding was led by the limited partners (sponsors) of its early backer Nexus Venture Partners, signalling the reluctance of external investors to participate in large-sized rounds.

According to weekly funding data from Tracxn over the past few months, early-stage deals have contributed 70-80% to total funding on an average, barring deals like Zepto or large secondary transactions such as Lenskart’s $600 million funding . “I think if you compare Europe and India, maybe because of the maturity of the market, we’ve started seeing entrepreneurs and cap tables being very reasonable with down rounds and that has opened up deal flow there quite nicely. In the US, too, high-quality companies got heavily overly capitalised which have now taken big valuation cuts,” he said.

ETtech Discover the stories of your interest Blockchain 5 Stories Cyber-safety 7 Stories Fintech 9 Stories E-comm 9 Stories ML 8 Stories Edtech 6 Stories In July, Vision Fund led a $65 million round in Tractable, a British insurance tech startup. The other difference between the Indian and global tech market is the openness to consolidation, maybe because many founders are returning entrepreneurs and have been through the cycle before . “Hopefully, founders and investors will realise that consolidation is a better and a more capital efficient answer.

. . We’re not seeing it now, instead it will happen when there is no point of return,” he said.

Juneja, who joined SoftBank Vision Fund from Silicon Valley fund Norwest Venture Partners in 2018, was given additional responsibility of Europe and Middle East with the exit of Vision Fund’s managing partners Yanni Pipilis and Munish Varma. Pipilis and Varma joined Vision Fund CEO Rajeev Misra, who stepped back from the group last year , to start his own venture. He, however, still oversees Vision Fund-I, along with running One Investment Management (One IM), which now has a corpus of $7 billion .

India report card Along with investment directors Sarthak Misra and Narendra Rathi, Juneja has been running the India investment team at SBIA for the past five years. Since he set up the India unit, Vision Fund-I and II have deployed more than $4 billion across 14-15 companies in India. With an investment team of six based in Mumbai, SoftBank will continue to focus on writing cheques which are $50 million and above with a few exceptions like the one it made in payments startup Juspay.

Doing series B-C deals requires a certain kind of strategy and sourcing which is different to SoftBank’s investment style. “If you do series B and C, you need to do a bunch of them together, the DNA of SoftBank is that of late-stage growth tech investing. So, can we be flexible on that $50 million (cheque size) to go slightly earlier to that on the edges? Yes, we have done this when we found good software-as-a-service (SasS) companies, which might not be $20 million ARR (annual recurring revenue) but might be at $15 million.

For example Juspay, Sense,” he added. The deal pipeline for the kind of investments SoftBank makes has not been robust in India even as the fund has been “very careful about valuations”, Juneja said. “Our strategy has been to come in at a $1-1.

5 billion post-money so the exit should be around $5-6 billion. We have not made $1 billion investments but put $50-250 million and not owned more than 15-20% in a company because exit post becomes hard in India,” he said. This is widely different from the pre-2018 investments SoftBank made which were far larger and typically in highly valued consumer facing startups.

London-based Juneja said in more than 90% of SoftBank’s deals, quality investors have come in after their entry at higher valuations. “We’ve been disciplined on valuation, execution and finding the (right) entrepreneur. The India portfolio is doing extremely well and a lot of credit goes to Narendra (Rathi) and Sarthak (Misra).

” SoftBank has also ensured it has a “decent percentage” of portfolio of companies which have dollar revenue with SaaS plus edtech firms like Eruditus. We have diversified into B2B in addition to B2C which was the focus before,” he said. According to him, 80% of SoftBank deals in 2021 were prior to July-August and the market went berserk post that.

“We were quite disciplined (at the time) and stayed away from crazy rounds. Almost all the deals we closed in 2021, Whatfix, Zeta, OfBusiness, Meesho – none of them was struck at a higher than $2 billion valuation,” he said. ETtech But has this ‘discipline’ led to any frustration for the India team on deal making? Absolutely not, Sarthak Misra said.

“The pipeline is not determined by what we are doing but what becomes a transaction 12 months from now. . What’s happening now is an outcome of what we did six months to 12 months back,” he said.

Exits, share sales, corporate governance SoftBank’s India portfolio firms have at least three years of cash runway left so they don’t have to raise capital to extend their runway, Rathi said, even as few of the companies may opt to raise fresh funds. “They want to raise capital on their terms to pursue M&A or international expansion, but none of them needs capital because money is running out for them. .

. ” he said. SoftBank has been making a series of partial exits through secondary deals in privately held companies like omnichannel retailers FirstCry and Lenskart while also selling its public holdings in firms like logistics firm Delhivery , digital payments major Paytm and food delivery platform Zomato .

Juneja said there was no pressure to sell from publicly listed startups. “It is not like the fund life is coming to an end. We keep analysing these companies — you look at the returns, the incremental internal rate of return, we could make from there and make a decision.

We don’t generally sell out the whole position but pare down systemically whether it is Policybazaar, Paytm, Delhivery…,” he added. Navneet Govil, executive managing partner and chief financial officer at SoftBank Vision Fund, told ET that Swiggy, Lenskart, FirstCry and OfBusiness were among its portfolio firms from India readying to go public next year. SoftBank diluted about 1.

5-2. 0% of its holding in FirstCry as three family investment offices bought its shares in the ecommerce firm, as reported by ET earlier this month. On the hot-button issue of lack of corporate governance in Indian tech startups like edtech major Byju’s, Juneja said, “I don’t think it’s an Indian or a tech-sector specific issue, we have seen this across the world and across industries.

Also it is an exception and more than 90% companies have not had any corporate governance issues…. We are very clear that we will not close a deal if we haven’t tracked the company and seen their data for 12-18 months. We always ask for an audit committee position and a big four auditor.

If we ever do a follow-on, we ask for full financial diligence. . .

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