MUMBAI (Reuters Breakingviews) - SoftBank's Indian shopping spree is venture capital with a kick. The Japanese conglomerate's Vision Fund is splashing $2.5 billion on online retailer Flipkart, effectively rendering worthless an earlier near $1 billion punt on rival startup Snapdeal. The investment ranks as the largest private bet on an Indian tech company. But it also shines a light on SoftBank founder Masayoshi Son's big-ticket investment flops.
Son’s company was the largest investor in Snapdeal, making bets at valuations worth up to $5 billion. But the company fell behind in India's e-commerce race. It was worth less than $1 billion by the time Son tried and failed to force a merger with Flipkart, which is now worth at least $12 billion. The decision to invest directly in Flipkart implies the Japanese group has given up on recovering value from the smaller group.
The Vision Fund, a $90 billion-odd investment vehicle managed by SoftBank, will now have a large but non-controlling stake in Flipkart. It is Amazon’s main domestic rival in the battle for dominance of the country’s online retail market, which Forrester reckons will be worth $64 billion in annual sales by 2021. But Son may lack the influence to guide Flipkart to a merger with the retail unit of Paytm, another Indian startup that is backed by Alibaba, the Chinese giant part-owned by SoftBank.
Earlier this week, Son talked about the need to have a "blood kind of relationship" with investee companies. But Snapdeal represents the second time he has lost control of the founders of a prominent Indian startup. The first embarrassment came at Housing.com, which fired its co-founder and chief executive after he pledged to give away his entire stake in the company to employees and attacked the board as intellectually incapable. The Japanese group ended up taking a back seat when Housing.com merged with a rival earlier this year.
The mess in India vividly illustrates the conventional wisdom that most startups fail. But the sheer size and high-profile nature of Son's exploits make the misses more astonishing. This is venture capital, but on an epic scale.
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