Open to investing in fintech post Paytm’s listing, missed out on SaaS deals earlier: SoftBank Vision Fund

Technology investor SoftBank has pumped close to $11 billion in India across both editions of the Vision Fund out of which $3 billion came this year, a top executive at the firm said, indicating the fervent dealmaking domestic startups have witnessed this year. SoftBank Vision Fund, which is an investor in newly listed PB Fintech, parent of Policybazaar and Paytm, which will make its public market debut on November 18, is expecting a bunch of portfolio firms to tap the buoyant IPO window amid skyrocketing valuations for tech startups.

“These are early days– The Indian capital markets are deep enough, may not be that way in the future but today they are to absorb big IPOs like Paytm, Zomato, Nykaa, Policybazaar.. This is a validation of the India market because historically what had happened was that people had invested in India but there were no exits except the Walmart-Flipkart deal,” Munish Varma, managing partner, SoftBank Vision Fund, told ET in an interview. Varma said it will be critical how each of these companies perform over the 12 months and see how the markets react to their financial performance.

SoftBank
sold $250 million worth of shares of PB Fintech in the lead up to its listing while its remaining stake is worth about $900 million based on the company’s $8 billion market cap as of Tuesday.

In One97 Communication, parent of digital payments platform Paytm, the Japanese group pared stake worth around $225 million and its holding is valued at $3.6 billion taking the upper end of the company’s IPO issue price at $20 billion valuation. Paytm will be the largest IPO, their anchor book was super strong and had very smart investors who believed in them and we believe in them, Varma added when asked about expectations from the company’s listing.

Open to investing in fintechs after Paytm listing

Having missed out on taking a wager on fintech, payments and the wider financial services sector due to its $1.6 billion exposure to Paytm, the fund will now actively scout opportunities in the space.

“Lending is a big opportunity, payments and allied businesses are a big opportunity and all these businesses collect large amounts of data. The winner will be the one who can take all this data that’s been collected and transform it into some monetizable product–for example insurance manufacturing,” Varma added.

Sumer Juneja, SoftBank Vision Fund, Partner and Head of India, SoftBank Vision Fund, said, financial services is not a winner-take-all market or a duopoly and there will be more than just one or two winners. “In financial services, if you look at HDFC Bank, it has a $120 billion market cap but their market cap is around 9%. So given the depth of the financial services, I don’t think it matters if you are number one or number two and some of this is vanity because UPI (P2P) you don’t make any money…”

Private vs public valuations

Seeing the current frenzy many startups have lined up to go the IPO route but questions have been raised on their business fundamentals and if they can survive the scrutiny of the public markets.

“When good companies come to the market, they will always be welcome…. Let’s say the market goes off its highs, but a company like Delhivery even in a tough market will be welcome. Maybe they won’t debut at over $6 billion valuation and it could be 10-15% lower but IPOs are here to stay for good companies….,” Varma said. Logistics and supply chain company Delhivery filed its draft IPO prospectus with the Securities and Exchange Board of India (Sebi) to raise Rs 7,460 crore through an initial public offering (IPO). SoftBank owns about 22% stake in the Gurugram-based firm.

Varma said the present market cap of the companies which have listed recently will determine the private valuation of their competitors. “ Public market valuations are richer than private markets right now, but markets are efficient and transparent. The gap between private and public doesn’t persist for very long. So the next financing round for Swiggy will be benchmarked on Zomato’s market cap…., he said. ET reported that SoftBank-backed Swiggy is finalising a new financing round of about $500-600 million that is likely to be led by US asset manager Invesco which may catapult its to as much as $10 billion, which is double the valuation ascribed to it just few months ago.

SVF- 2 and its strategy

Meanwhile, the Vision Fund 2 has taken a different approach in investments through this vehicle by writing smaller cheques across a wider range of companies. Masayoshi Son, founder and CEO, SoftBank, said earlier this month that the size of investments per deal in Vision Fund 2 has shrunk to one fifth of Vision Fund 1. This, he said, makes the allocations robust and diverse.

Varma said the Vision Fund 1 was ‘behind the curve’ on enterprise SaaS(Software-as-a-Service) investments. “Vision Fund-1 didn’t have enough exposure to SaaS and we should have taken more bets in enterprise SaaS out of Vision Fund 1,” he said. SoftBank’s record $100 billion Vision Fund -1 which was launched in late 2017 started off by making larger sized investments which Varma said kept stage SaaS firms away as they typically don’t opt for such big funding rounds. SoftBank has since backed SaaS startups like Whatfix and Mindtickle.

Son-led SoftBank has also been seen as being very aggressive on offering steep valuations to startups to clinch deals but Varma said the Japanese group is not ‘insensitive’ to valuations. “ I am looking at an insurance company in the US. It’s expensive but the TAM (total addressable market) is so big, whether I pay $3.5 billion valuation or $3.75 billion it doesn’t matter because if I get it right there is a $20 billion outcome. So, 4-5% up or down makes no difference…”