Enter Softbank, the ninja in shining armor.
But wouldn’t other stakeholders in Flipkart object to Softbank’s largesse being restricted to Tiger alone? Well, the company itself is now run by Kalyan Krishnamurthy, an ex-Tiger employee, so that is one hurdle crossed.
The founders have been given fat secondary exits and have been “failed upwards”, promoted to titular but largely powerless positions within the company, so there are not likely to object, or even have a say in the matter. The other investors owe their follow-on funds to the markups that they were able to show in Flipkart, thanks to Tiger’s own benevolence at some point in time in the past, so they are not likely to protest violently either.
A bloodless coup for the taking.
Softbank, the Leviathan
Softbank’s disastrous funding choices in India now leave it at a point where it essentially needs to make a fresh start. The man who made those funding choices, Nikesh Arora, is no longer at the helm – given the recent allegations of impropriety, it is moot if one reason for his absence is those funding choices themselves.
Be that as it may, this time around, rather than back dubious early-stage startups with $100m cheques, Softbank seems to want to buy its way into the largest, most established startups. If the price to pay for that is steep both in terms of valuation and in terms of needing to provide a secondary exit to investors like Tiger, so be it. Or as in the case of Paytm, if it has to invest more than a billion dollars at a valuation eight times higher than the one it refused a few years ago, that is also kosher for Softbank.
Isn’t Softbank’s bullishness a great sign for the Indian ecosystem? Nope. It is great for the handful of startups in which it is likely to invest hundreds of millions or billions of dollars but terrible for everyone else.
Softbank has long pulled out of early-stage investing. By backing category leaders in the sectors of its choice with insane amounts of capital, it is basically crowding out all other investors and competing startups. Like black holes, the chosen ones will suck up talent, resources, and attention while their competitors will starve.
The treasure chest of funding will inevitably lead startups back to lazy deep discounting and Ponzi business models as they seek to attract recalcitrant customers – the startup equivalent of a scorched earth environment is all but guaranteed. You would think that it is the best of times for the startups in Softbank’s portfolio and the worst of times for competitors but the fact of the matter is that this is likely to be the worst of times for both sets of companies. One set will suffer from starvation while the other will die of gluttony.
What about Snapdeal?
Yes, let’s get back to that.
Snapdeal’s saga leaves us with the following points to note:
1. Founders don’t have to take their startups to victory for them to win personally. Despite Snapdeal’s implosion, its founders have made tons of money for themselves – well over $100m as per a VCCircle report. The best part is that they made most of this money in secondaries well before the actual exit itself.
So not only did Messrs Bahl and Bansal make good, their names are likely to be offered as founders exemplar, templates for future generations of startup founders to admire and aspire to emulate. All-round heroes, I tell you.
2. Picking winners is not enough for a VC, cashing out at the right time is more important. Apart from the unfortunate souls who invested into Snapdeal in its last funding round at a valuation of $6.5b and are likely to be wiped out, the biggest loser is likely to be VC firm Nexus Venture Partners.
Nexus was the firm that leads Snapdeal’s Series A and is, therefore, its earliest backer. Over the years Nexus is said to have invested approximately $45m into Snapdeal in total. At one point in time, its 10% stake in the company would have been worth more than $650m, a wonderful return. However, unlike other investors, the firm never cashed out any of its shares even when opportunities were available.