Although founded as a telecoms firm, Japan-based SoftBank has used its corporate venturing investments to in effect expand itself into an internet group with extensive e-commerce holdings.
2015 was the year the company elected to take the next step, reducing the activities of its SoftBank Capital unit and making strategic investment an intrinsic part of its business practice.
SoftBank president Nikesh Arora announced in June that SoftBank Capital, which was formed in 1995, would wind down as the firm switched from many small startup investments to fewer, larger deals.
“As we look at the future for the next tens of years, we believe that the way to preserve the long-term sustainability of SoftBank is to be large minority shareholders of many assets,” Arora told Re/code. “We believe that it is less crowded in the large-cheque marketplace…and it is a smaller universe of companies we have to understand and support.”
The origin of the strategy can be traced back to two investments SoftBank made many years ago. In 1995 it paid a reported $2m for a 5% stake in internet company Yahoo that ended up being worth billions.
Five years later it provided $20m for Chinese e-commerce startup Alibaba. By the time of Alibaba’s 2014 IPO, SoftBank’s 32% stake in the company was worth $87bn, and according to its investor information, SoftBank’s own market cap is now less valuable than its investment holdings.
The Alibaba investment has to some extent become a template for SoftBank’s Asian investments. It tends to invest heavily at growth stage to pick up a 20-35% stake, and in the process has secured shares in many of the continent’s largest e-commerce players.
This is most widely pronounced in the ride sharing sector, where it began the year by co-leading a $600m round for Kuaidi Dache just prior to the company’s merger with rival Didi Dache to form China’s largest ride hailing company. It followed that deal by participating in series E rounds closed by India-based Ola and Singpore-based GrabTaxi that totalled $750m.
SoftBank’s largest investment during the year was the $1bn it paid Korea-based mobile commerce platform Coupang in June for a stake reportedly sized at 20% stake, though it also led a $1bn round for lending platform SoFi in September, which reportedly valued the US-based company at $4bn.
As it was last year, SoftBank’s main destination was India, where it said last year it planned to invest $10bn. In addition to Ola, the firm led a $500m round for e-commerce marketplace Snapdeal in September, confirming its position as the company’s largest shareholder, and also led nine-figure rounds for last-mile delivery service Grofers and accommodation marketplace Oyo Rooms.
SoftBank Capital’s US fund continued to make investments, generally in e-commerce companies at early stage. However, it became increasingly common in the second half of the year for companies the unit had previously backed, such as media companies NowThis and The Dodo, to raise new funding with SoftBank and not its subsidiary as an investor.
The two were among the only media investments the firm made in 2015, indicating that an increased focus on e-commerce may be at the cost of a traditionally strong area for SoftBank, which in the past backed Buzzfeed, Buddy Media and The Huffington Post at series A stage.
Nevertheless, in the current period of new media consolidation, Buzzfeed could end up being the group’s next big exit. SoftBank’s most signficant exit this year involved wearable fitness tracker maker Fitbit, in which it sold $16.5m of shares in an IPO that saw it retain a stake worth about $280m today.
SoftBank appears to be playing the long game by accumulating holdings however, and it will likely look to invest rather than exit at this point. Instead, its portfolio companies may increasingly look to form strategic partnerships, such as the one between Didi Kuaidi, Ola and GrabTaxi earlier this month that will involve them establishing international links between customers. Expect to see more such partnerships next year.