SoftBank resumes investments in India with a more flexible and focused strategy

After a two-year hiatus, SoftBank is cautiously re-entering the venture capital landscape with a smaller investment in wearable technology startup Ultrahuman. This marks a notable shift in its strategy, which is now more adaptable to the evolving venture capital environment in India. While SoftBank’s approach remains flexible with smaller deals, larger investments are also in the pipeline, indicating a balanced strategy going forward.

Historically, the company has been a major player in India, where it has invested $15 billion in about two dozen startups. The recent investment in Ultrahuman, valued at about $300 million, is the smallest in SoftBank’s Indian portfolio.

This suggests that SoftBank is exploring smaller deals, in the tens of millions, moving away from its previous pattern of large-scale investments. This adjustment comes as growth-stage investments begin to pick up again after a period of slow funding and as competition in the Indian market has softened, leading to lower valuations.

In 2021, during the VC boom, SoftBank invested in enterprise technology and software startups with amounts as low as $50 million. The goal was to invest early, before these startups became too valuable or cash-rich, making venture capital less necessary. The investment in Ultrahuman, however, represents a different direction, as SoftBank focuses on a smaller consumer technology startup, signaling its willingness to be more flexible and selective.

The rise of SoftBank in India

SoftBank’s entry into India in 2011 was a game-changer. The $200 million investment in InMobi, at a time when such large deals were rare in the Indian tech landscape, was transformative. This deal not only made InMobi India’s first unicorn, but also established SoftBank as a formidable investor in the region. In 2015, the company made a splash again with a $1 billion investment across three Indian startups, laying the foundation for its dominance in the Indian tech ecosystem.

With the launch of the $100 billion Vision Fund, SoftBank stepped up its investment strategy, culminating in multi-billion-dollar deals such as investing $2.5 billion in Flipkart, $1.6 billion in Paytm, and $1.5 billion in Oyo in 2018. These deals underlined SoftBank’s strategy of betting big on market leaders, often resulting in its portfolio companies outperforming rivals.

Over time, SoftBank realized the need to recalibrate its strategy, especially as the venture capital landscape in India matured. It built a local investment team and focused on smaller deals under $100 million, marking a shift from its previous practice of granting unicorn status to the startups it backed. SoftBank also began taking smaller stakes in startups, allowing other investors to lead funding rounds.

In 2018, the Vision Fund began prioritizing SaaS and enterprise technology, making smaller investments like $90 million in MindTickle, $50 million in Juspay, and similar amounts in Whatfix and Sense. This strategic shift reflected SoftBank’s desire to be more calculated and thoughtful, building long-term relationships with early-stage venture capital firms while compiling a list of potential future investments.

Despite this recalibration, SoftBank remained an influential player in India’s venture capital scene. Between 2020 and 2022, during the funding boom, the firm invested more than $3.2 billion in a dozen Indian startups, including follow-on investments in companies it had already backed.

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A new beginning

Over the past two years, SoftBank has focused on divesting stakes in some of its companies, while making additional investments in those it had previously backed. However, it has been careful about evaluating new opportunities, with the investment in Ultrahuman being one of the first new deals in a while. At the same time, SoftBank is looking at larger deals in technology infrastructure, including potential investments in companies such as Addverb, a robotics startup for warehouse automation, and Nxtra, Airtel’s data center business.

Meanwhile, SoftBank is expecting to reap significant profits from Swiggy’s upcoming IPO. The company expects to earn double the return on its investment in Swiggy, which could be worth $1 billion. This success is part of a broader positive trend for SoftBank’s Vision Fund, which has seen its $10.7 billion investment in India nearly double in value. To date, SoftBank has already generated about $7 billion by selling shares in public markets and through secondary transactions.

Other key holdings such as Firstcry, Ola Electric and Delhivery represent additional liquid assets worth between $2.5-3 billion. Despite some setbacks, such as a 20% loss in Paytm shares, SoftBank’s overall returns from its portfolio have been strong, thanks in part to successful IPOs such as Policybazaar, where it earned returns of 3.4 times its investment.

While SoftBank has retreated from pre-IPO funding rounds — an area more suited to pension funds seeking modest returns — it continues to focus on higher-yield deals. SoftBank typically targets returns of around 30%, shaping its strategy around deal size and valuations.

While less active in secondary transactions, SoftBank remains committed to fresh capital investments, particularly in startups valued at less than $500 million. Its current focus involves tracking about 100 startups into the Series B phase and beyond, positioning itself to take advantage of opportunities as they arise.

With the Vision Fund close to recovering all invested capital and holding stakes in more than a dozen companies, SoftBank’s presence in the Indian market is set to resurge. Its renewed strategy of balancing smaller investments with larger deals indicates that SoftBank is ready to ride the next wave of growth in India’s evolving startup ecosystem.