Ebay Doubles Down

Ebay doubles down in the tech bargain basement that is India. While still retaining a small stake in Snapdeal, Ebay is rumored to be interested in making an investment in the other Indian E-commerce site, Flipkart. Due to Flipkart’s recent lower valuation, it may be a good time for Ebay to make a purchase. In fact, Snapdeal is currently cheap, too.

Ebay first invested in Snapdeal in mid-2013 and made another investment one year later. Snapdeal’s “complementary business model, good management and strong brand” were enough for Ebay to make its initial investment and eventually own nine percent of Snapdeal. Then in 2015 and with a change of heart, Ebay profited from selling some of its Snapdeal stock to Alibaba as reported in The Golden Tap.

Ebay made money exiting Snapdeal while others eagerly wanted in. At the time, Ebay said the following in a press release:  

Over the past two years, the valuation of Snapdeal has significantly increased, and because eBay was an early investor, this sale will enable us to earn a strong return on our invested capital

Snapdeal is now trying to raise more money, but at a lower valuation. In fact, Snapdeal is trying to save money with employee layoffs and the co-founders taking no salary. Such measures were necessary given Snapdeal’s financial trouble in the past year. So bad are things, that Softbank wrote-down its investment in Snapdeal last year. Based upon its latest filing, Ebay has not written down its last remaining slice of Snapdeal.

While not as bad Snapdeal, Flipkart’s turnaround seems to be succeeding under new CEO, Kalyan Krishnamurthy. Hopefully, Ebay will be lucky again, this time with Flipkart.

Softbank Takes Loss on Indian Unicorns

Snapdeal and Ola give big losses to Softbank. In its recent earning release, Softbank took a loss of $345 million on the Indian startups for the nine months ended December 31, 2016. A gain, on converting the investment from Indian rupee to yen, limited Softbank’s losses; otherwise it would have been $490 million.

Softbank’s loss came from writing down the combined value of Snapdeal and Ola, as stated here:

Gain or loss arising from financial instruments at FVTPL comprises mainly of changes in fair value of preferred stock investment including embedded derivatives, such as ANI Technologies Pvt. Ltd and Jasper Infotech Private Limited in India, designated as financial assets at FVTPL.

Snapdeal and Ola now face harder times raising more funds, based on Softbank’s actions. Not only did Softbank lower its valuation, but so did mutual fund company, Vanguard. This month it was reported that Vanguard wrote down its Ola investment by forty percent. Uber faces an easier time in India with Ola’s lower valuation. Cash raised by both companies allows for discounts and incentives to expand their businesses.

Softbank may not be too happy, either. News of the losses come after Softbank managing director, Jon Bullock, resigned from the boards of both Ola and Snapdeal in January 2017. Mr. Bullock takes over as director of Softbank Vision Advisors which will managed the $100 billion tech fund being raised by Softbank.

Over the past years, Softbank invested in India by taking proven business models and investing in their Indian equivalents. With Softbank seeing red with the losses, may be this will inform the Vision Fund’s investment strategy?

Latest News on the Softbank Vision Fund

Jonathan Bullock has resigned as board member of three Softbank portfolio companies: Snapdeal, Housing.com, and Ola. Bullock’s resignation was disclosed in regulatory filings on Friday, as reported by India’s Livemint on Monday. In hindsight, Mr. Bullock’s resignation is predictable given his new role at Softbank Vision Advisers, Limited, and the need more time

As stated here, Jonathan Bullock, along with Rajeev Mirza, are directors of Softbank Vision Advisers, Limited. On January 10, 2017, Alok Sama himself resigned, leaving only two people in charge of Vision Advisers. Vision Advisers will manage money raised from The Saudi Arabia Public Investment Fund, Apple, Larry Ellison, Foxconn, and Qualcomm.

After Nikesh Arora left Softbank, Mr. Bullock replaced him as board member of the three portfolio companies. Now himself leaving, Mr. Bullock cites “personal reasons and other obligations” for resigning from Snapdeal and Ola. Given the timing of the resignations, the “other obligations” may be running Vision Advisers. Mr. Bullock wanted his resignation effective on January 16, 2017, which is one about week after Mr. Alok Sama resigned as a director of Visi0n Advisers, Limited.

Mr. Bullock departure is big news due to Softbank’s early and large investments in India startups. In fact, Softbank and other global funds have poured money into India using a “this of that” strategy: taking proven business models and investing in their emerging market equivalents. As money is now poured into the Vision Fund, Softbank and Mr. Bullock(?) are now gearing up for new investment opportunities.




Rolling Bones – Indian Style

You lose some and then you win some.

More news came out this week of Snap’s impending initial public offering. In an highly anticipated sale, one early investor is hoping to striking it big, Fidelity Investments. At the same time, in another under-reported story in the U.S., Fidelity wrote down its stake in the Indian e-commerce site, Flipkart. Fidelity now values Flipkart at $5.6 billion or thirty six percent less than before.  

Mutual fund money from investors such as Fidelity and T. Rowe Price flowed into private equity over the past ten years. Often the mutual funds piggybacked on the earlier trades made by venture capital firms. Mutual fund involvement with the “Unicorns” became a window on an otherwise opaque, private market. Markups and markdowns by mutual funds of their Unicorn holdings, became a proxy for a public market.

Now in India, the Unicorn market could be slowing imploding. Besides Flipkart, one of the other India e-commerce sites is receiving a reduction in valuation. Snapdeal, it was also reported this week, was seeking additional funding, but at a lower valuation. And one must remember that the same issue occurred to Ola back in the fall of 2016.

India has received considerable money from global funds and Silicon Valley venture capital firms, such as Sequoia. The money followed an investment thesis described as the “this-of-that”. Translated, the strategy meant taking business models from development markets and then investing in their emerging market equivalents. So for India, this meant Flipkart got head start on Amazon and Ola rode along with Uber.

As stated here before, money from big players – Tiger, Softbank, Alibaba, etc. – has flowed into India in the past ten years. As in other places, money and not technology was the prime determiner of the success as startups subsidized prices to attract and hold customers. But only companies with sufficient capital can continue to play the game. That is why the recent funding problems in India are so troubling.