When one thinks of SoftBank investments, one usually thinks “big”; however, the global fund house has given a significant surprise as it marks a departure from billion-dollar deals and has shown interest in investing as small as USD30 million in India.

After a two-year break, SoftBank is making a cautious return by investing a smaller amount in the wearable startup Ultrahuman. While this marks a fresh start, it’s not a complete shift in their approach, as larger deals are also in the works, showing a slight adjustment.

SoftBank, which has invested $15 billion in about two dozen Indian startups, is now being more flexible with its deals to fit the changing venture capital scene in India.

The Ultrahuman investment is the smallest and has the lowest valuation in its Indian portfolio. Reports suggest the deal is valued at around $300 million, signalling SoftBank’s willingness to explore smaller investments in the tens of millions.

As growth-stage investments pick up after a long funding slowdown, competition has eased, and valuations have dropped from their 2021 peak, allowing SoftBank to adjust its strategy. This is why smaller investments are becoming part of their plan.

Even during the 2021 venture capital boom, SoftBank made a series of $50 million investments in software and enterprise tech startups, knowing they would soon become profitable and expensive. These startups often avoid venture capital once they become cash-rich, so getting in early was crucial.

But the Ultrahuman deal is different. This time, SoftBank’s Vision Fund is making a smaller investment in a consumer tech startup, indicating a shift in their approach.

The Rise Of SoftBank In India

SoftBank and its CEO, Masayoshi Son, made a major impact in India in 2011 by investing $200 million in InMobi.

At the time, deals of this size were rare in India’s developing tech sector and the investment turned InMobi into India’s first unicorn, marking a huge success for both the company and SoftBank.

Four years later, in 2015, SoftBank made waves again with a billion-dollar investment spread across three Indian startups.

These massive investments helped SoftBank’s portfolio companies dominate the market, out-competing rivals and intimidating other investors.

With the launch of its $100 billion Vision Fund, SoftBank ramped up its efforts and by 2018, it was writing even bigger cheques, such as $2.5 billion for Flipkart, $1.6 billion for Paytm, and $1.5 billion for Oyo.

Recalibrating Its Strategy

Eventually, SoftBank adjusted its approach built a local investment team in India and began making smaller investments, under $100 million.

It no longer guaranteed that its funding would turn a startup into a unicorn and instead, SoftBank started taking smaller stakes and allowing other investors to lead the funding rounds.

The Vision Fund began focusing on SaaS and enterprise startups, investing smaller amounts like $90 million in MindTickle at a $600 million valuation, $50 million in Juspay at a $440 million valuation, and similar amounts in Whatfix and Sense.

After establishing a local presence in 2018, SoftBank adopted a more thoughtful approach. Its India investment team built strong relationships with early-stage venture capital firms and developed a long list of potential investments.

Despite these changes, SoftBank remained a key player in the venture capital scene. During the 2020-2022 boom, it invested over $3.2 billion in a dozen Indian startups, including follow-on investments in companies it had already backed.

Starting Afresh

Over the past two years, SoftBank hasn’t made any new investments in India.

Rather, it focused on selling shares in some companies and making additional investments in the ones it had already backed while keeping an eye on new opportunities.

The company has also been in talks for months about making big investments in technology infrastructure.

According to sources, SoftBank is considering a large deal with Addverb, a warehouse automation robotics startup. It also looked into investing in Airtel’s data center business, Nxtra, though the outcome of that deal is still unclear.

Long before most investors recognized the shift towards artificial intelligence (AI), SoftBank’s CEO Masayoshi Son was ahead of the curve, launching the massive Vision Fund in 2017.

His AI investment strategy has two parts: long-term investments in AI infrastructure, like data centers and robotics, and more opportunistic bets in AI-driven consumer applications.

Big investments in infrastructure like data centers and industrial robotics require a lot of capital and risk. Meanwhile, AI-powered consumer products are still emerging in India, with only a few opportunities available.

Thus, it explains why SoftBank is making smaller, but strategic investments, like the recent series C deal.

However, there are other reasons for this approach.

After a tough period for funding, the startup investment environment has cooled off; company valuations have dropped, and there is less capital available, although deal activity is starting to pick up.

As one investor noted, “Startups that were once valued at $800 million are now worth less than $500 million.” This means SoftBank can secure a significant stake with a relatively smaller investment.

Other major investors like Tiger Global, Alpha Wave Global, Insight Partners, and Coatue, who were very active in 2020-2022, have similarly largely pulled back.

The only other late-stage investor as active as SoftBank right now is Prosus, which is set to benefit from the upcoming Swiggy IPO.

Harvesting The Fruits

SoftBank is expecting significant returns from Swiggy’s IPO- a likely 2x return on its three-year investment in the food delivery company could bring in $1 billion; if so this success reflects the overall performance of SoftBank’s Vision Fund.

The $10.7 billion the fund has invested over the past seven years is now worth almost double. So far, SoftBank has made about $7 billion by selling shares in public markets and through secondary transactions.

In companies like Firstcry, Ola Electric, and Delhivery, SoftBank has additional liquid assets worth between $2.5 billion and $3 billion.

SoftBank has benefited greatly from startup IPOs. For example, it made 3.4x returns on its $199 million investment in Policybazaar, earning $680 million.

It also pulled out $400 million from Firstcry when it went public, while still holding shares worth $800 million. Although SoftBank took a 20% loss when it sold Paytm shares for $1.3 billion, other profits in public and private markets made up for this setback.

The stock market is showing strong interest in startups, providing SoftBank with good exit opportunities. At the same time, IPOs can create competition, as many late-stage startups prefer going public rather than seeking private investors.

In pre-IPO funding rounds, SoftBank is less involved. This space is more suited to pension funds that seek returns of around 15%. SoftBank, however, aims for higher returns of around 30%, which affects its strategy and flexibility when it comes to deal sizes and valuations.

SoftBank isn’t very active in secondary transactions, where early investors sell their shares. Many late-stage deals now involve such transactions, like in unicorns Urban Company and Innovaccer.

However, SoftBank prefers to invest fresh capital rather than buy shares from existing investors. With fewer startups valued over $500 million, SoftBank is starting to look for opportunities in lower-valued companies.

It has been tracking around 100 startups in the series B stage and beyond, so finding new deals doesn’t require much extra effort.

The Vision Fund has almost recovered its invested capital and still holds significant stakes in more than a dozen startups. With its investment range expanding from millions to billions, SoftBank is back in action and ready for more.

The Last Bit, SoftBank’s journey in India reflects a dynamic and adaptive investment strategy- from making bold, large-scale bets on startups like InMobi and Flipkart to adopting a more measured approach with smaller investments in recent years, the company has consistently evolved with the market.

As it re-enters the Indian startup ecosystem after a brief hiatus, SoftBank is strategically balancing exits with new investments, focusing on sectors like AI and infrastructure while also exploring smaller, growth-stage opportunities.

With its Vision Fund recovering capital and continuing to hold significant stakes in major startups, SoftBank remains a major investor in the Indian ecosystem.