SoftBank writes down its $1.4 bln investment in Snapdeal, Ola

Development comes when the Japanese investor is in the final stages of negotiations to sell Snapdeal to larger rival Flipkart

Based in Delhi, I track developments both in corporate and economy sectors. In a career spanning since 2003, I track developments pertaining to M&A, PE/VC, startups and healthcare. Prior to joining Forbes, I have had stints with The Economic Times, Businessworld, India Today and Indian Express. I am also a guest faculty at The Indian Institute of Mass Communication (Dhenkenal) where I deliver part-time lectures to young aspiring journalists and teach them the practical side of reporting and editing. And when not working, I love to travel and spend time with my fawn Labrador.

mg_96153_rtx2s90hbg_280x210.jpg(Image: Thomas Peter/ Reuters)
 
Japanese investor and Internet giant SoftBank that holds a significant minority stake in Snapdeal has written down a substantial portion of its investment, of around $ 1 billion, in the online marketplace.

The development comes at a time when the Japanese behemoth is in final stages of negotiations to sell Snapdeal to larger rival Flipkart. Forbes India has learnt that a board meeting was held at SoftBank earlier this week to debate on the proposed transaction “where the investors were trying to arrive at a consensus,” a person privy to the developments said.  
 
But, meanwhile, in the earnings report for the fiscal year ended March 2017, SoftBank said it has written off about $1 billion. This was primarily due to the loss on valuation of shares of subsidiaries and associates including Starfish I Pte Ltd, which holds shares in the privately-held Jasper Infotech, which runs Snapdeal.
 
When contacted, the SoftBank spokesperson said: “The valuation of our financial investments is frequently adjusted upwards or downwards due to accounting policies, currency fluctuations and market dynamics. The loss reported in today's earnings represents the aggregate impact of such revaluations during the course of the entire fiscal year.”
 
However, it is not Snapdeal alone. Softbank has also marked down its valuation in cab aggregator Ola, run by ANI Technologies Pvt. Ltd. In fact, together in both the startup unicorns, the Japanese investor said, it has incurred a loss of Yen 160,419 million ($ 1.4 billion) from financial instruments at fair value.
 
Snapdeal and Ola are Softbank’s flagship investments in India.
 
This is not the first time when the Japanese investor has reduced the value of some of the startups it has invested in. In February 2017, SoftBank had decreased in value by 39,281 million yen ($350 million) in both Snapdeal and Ola in the nine months ended December 31, 2016.
 
So far, Snapdeal has raised around $1.65 billion from a host of investors. Apart from SoftBank, other investors in the company include Chinese e-commerce company Alibaba, Taiwanese contract electronics manufacturer Foxconn, global online marketplace eBay Inc. Other investors who infused capital early in the company include Bessemer Venture Partners and Intel Capital.
 
What does this mean for the industry? Even as all eyes are on Snapdeal and Ola, the markdown in valuation raises questions on the overall startup sector in the country that raised capital in hordes between 2014 and 2016.
 
Innovative ideas have come up in the last two years but not all of them have had the bandwidth to scale up to the next level, even if there is capital available.  While some of the industry leaders have the bandwidth to ride through this, it is obvious that most of the players will witness phase out or witness consolidation going forward.
 
Besides, over the next 1 to 2 years, it is imperative that the industry will see a massive correction in valuation with clear winners emerging. “A lot of investments had gone in the sector on the basis of speculation rather than taking the actual fundamentals in account.” an analyst told Forbes India on condition of anonymity.
 
In 2016, as many as 620 transactions were sealed in the PE/VC space, according to data available with research firm Venture Intelligence. Of this, about 65 percent comprised startup investments.
In 2015, the year that created history for the highest amount of PE and VC investments, both by value and volume, of the total of 775 investments sealed in the January-December period that year, 512 were startup deals.
 

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