Even the indefatigable Son had to admit that perhaps he had placed some big bets without thinking them through. He described himself as becoming “somewhat delirious” during the apex of SoftBank’s startup funding binge when the investments were paying off big and says he is now “embarrassed and remorseful.”
The most prominent Asian fintech in SoftBank’s portfolio is India’s Paytm, the subcontinent’s most celebrated digital financial startup. After selling a small portion of its stake in Paytm after the company’s November 2021 IPO, SoftBank retains an US$800 million investment in the firm according to its FY2022 annual report, 42% less than the US$1.4 billion it originally invested.
More than a year on from its IPO, Paytm’s shares are trading at 542 rupees, 66% less than their value at the time of the market debut. Given the shares’ underwhelming performance, Paytm's board unanimously approved a US$103 million buyback in mid-December. "The management believes that given the company’s prevailing liquidity/ financial position, a buyback may be beneficial for our shareholders," Paytm's parent company One97 said in a statement.
Nevertheless, SoftBank’s investment in Paytm may yet turn out to be a wise move. Though it lost 5.71 billion rupees ($69.7 million) in Q2 FY23, compared to a loss of 4.73 billion rupees during the same period a year earlier, revenue increased 76% to 19.14 billion rupees. It also may be in the running for a small finance bank (SFB) license in India that would allow it to offer all the same services traditional lenders do. This license could be a game-changer for Paytm, allowing to move it beyond the low-margin payments segment in a meaningful way.
Other India fintech investments
In addition to Paytm, SoftBank has invested in a number of other Indian fintechs – with mixed results. Of these, banking and credit technology unicorn Zeta, which has a valuation of US$1.5 billion and has raised US$280 million overall from investors, has some strong fundamentals. In March, Zeta inked a deal with Mastercard that will target issuance of cards that could lead to up to US$60 billion in purchase volume over the next five years.
Zeta posted strong revenue growth in FY2021, with revenue growing more than two times to Rs 297 crore from Rs 121.6 crore in FY20. However, Zeta posted annual losses of Rs 43 crore in FY21, well above the Rs 20.3 crore it lost in FY2021
Online insurance marketplace Policybazaar is another prominent SoftBank India fintech investment. Though shares of its parent company company’s PB Fintech Ltd surged almost 23% in the firm’s debut on the India Stock Exchange in November 2021 which raised about 57 billion rupees (US$761 million), the stock has since lost more than 59% of its value and is trading at around 464 rupees. Nevertheless, according to SoftBank’s FY2022 report, its investment in PolicyBazaar saw a cumulative gain of US$300 million in FY21-22.
More strategic investments
Given changing market conditions, SoftBank no longer has the luxury to throw bags of money at any tech startup that piques Masayoshi Son’s interest. FTX’s implosion will ensure that SoftBank approaches cryptocurrency firms cautiously. After all, it could have been a lot worse if SoftBank had invested more in the company.
SoftBank’s recent investment in Singapore-based Funding Societies – it led a US$294 million funding round in February – which says it is Southeast Asia’s biggest digital financing platform for small and medium-sized firms, offers clues about the Vision Fund’s changing focus. To be sure, B2B fintech is a lot less glamorous than retail. It doesn’t usually offer the same opportunity to build scale quickly. It’s not how dominant fintechs in Asia like Alipay and Tenpay and Kakao Bank became juggernauts.
That said, in this tougher environment for tech startups, it would behoove SoftBank to invest in companies that don’t require near-constant customer subsidies and other marketing expenses just to ensure steady user adoption. It needs to be thinking about fintechs with sustainable business models.
Funding Societies fits the bill. The company, which also operates in Indonesia, Malaysia, Thailand and Vietnam, has disbursed over US$2 billion to date in loans to MSMEs. That MSMEs are underserved in all of those markets and there is high demand for business-centric credit solutions across Southeast Asia augur well for Funding Societies.