SoftBank to bet on smaller ticket size for the second Vision Fund

Softbank CEO Masayoshi Son who has already invested over $4-5 billion in over 15 deals in India through the group’s second Vision Fund, will be looking for smaller ticket sizes, lower equity holding, and more numbers than what it bet on through its previous fund (the first Vision Fund), say sources in the know. 

He will prefer not leading a consortium of investors in the follow up rounds, say sources. In an internal memo on Thursday, Softbank said Son will now oversee the running of the second Vision Fund instead of Rajeev Misra, head of Softbank Group’s mega venture investing arm.

Misra will step back in a reduced role in order to set up his own fund. However, he will continue overseeing the first $100 billion Vision Fund in which he played a key (and sometimes controversial) role. 

The two funds together have invested over $11-12 billion in the country. Together with Softbank’s direct investment, this goes up to $14 billion.

The open ended second Vision Fund has a dry powder of $30 billion and can continue to top up the fund.  It has been entirely funded by Softbank, unlike the earlier fund which had many other investors such as the Public Investment Fund of Saudi Arabia, Mubadala, Qualcomm, and Apple, amongst others.

Sources point out that the average check size by the new fund will be around $150-250 million, in contrast to the $900 million in Vision Fund 1. The focus will be on early growth startups which have already become unicorns with valuations of $1-2 billion, not  later stage deals.

On average, the fund will be interested in a stake of around 10- 20 per cent rather than as much as 40 per cent (in Oyo), as was the case with Vision Fund 1.   

It is also involved in more deals, having already closed 15 in two years, as compared to the total of 25- 26 investments made totally by Son in the country through the two funds.  Softbank declined to comment.  

Sources say that as part of the plan, the expectation is that at  least five of the investments made by the two funds will go public by the end of this year or next.

These include First Cry (an investment of 30 per cent) with a current valuation of $2.7 billion and for which there may be follow up funding before an IPO; Swiggy, in which it has 10 per cent, with a valuation of $10 billion; and Lenskart at $4.5 billion for which all the funding has come through Vision Fund 2.

The other two which will hit the IPO trail are Ola Cabs and Oyo. The latter is planning to cut the initial size of its IPO. In these two, the investment has come from the previous fund which Misra will continue to oversee. The other key investments made by Son through the first Vision Fund have already gone public: Paytm, Policybazaar and most recently, Delhivery.

With Zomato buying out Grofers (now called Blinkit), the holding which the first fund  had in the startup will be converted into a 3.5 per cent stake in Zomato. Yet the move to go public has not turned out to be a bonanza  with markets crashing across the world and in India.

Softbank has reported an unrealised loss of $585 million in FY’22 against a $1.6 billion investment in Paytm. But in Policybazaar, it gained $402 million on an investment of $199 million in the same period. As to Delhivery which reduced its IPO size by 30 per cent, it barely managed to sail through in a volatile market.

Vision for the future

• Average cheque size will be around $150-250 mn
• Equity stakes picked up in a start-up will be 10-20%
• Will not lead consortium of investors in follow-up fund raises
• Second Vision Fund has a dry powder of $30 bn