Are we celebrating SoftBank and Nikesh Arora too soon?

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This post has been corrected. 

Around two years ago, India’s technology startup space was dominated by American investors such as Tiger Global and Sequoia Capital. But it all started changing in October 2014 when Japan’s SoftBank announced investments of around $800 million in two Indian startups—online retailer Snapdeal and ride-hailing startup Ola.

The telecom giant, led by Masayoshi Son, one of Japan’s richest men, has not slowed down in Asia’s third-largest economy since then. SoftBank has ploughed in around $2 billion (Rs13,500 crore) in India over the last 18 months, making it one of the largest investors in the country’s startup ecosystem, according to The Economic Times newspaper.

That has given entrepreneurs and the media enough reason to celebrate Nikesh Arora, the India-born president of SoftBank. Most of SoftBank’s investments in India have happened after he joined the group in July 2014.

Late last year, The Times of India newspaper named Arora investor of the year for 2015. “Arora emerged as a clear winner in a year when the Japanese internet and telecoms giant doubled down on the Indian market with fresh investments in Oyo (Rooms) and Grofers,” the newspaper said.

But not everyone appears to like the praises being showered on SoftBank. The investor, famed for some marquee global investments such as China’s largest online retail group Alibaba, has not been able to work its magic here yet. Except for Ola and Snapdeal, most other investments of SoftBank in India are still far from showing any promise.

“What SoftBank has done outside India is very different from what SoftBank is doing within India. They’re almost like two different companies with two different philosophies,” Mahesh Murthy, serial entrepreneur and cofounder of investment firm Seedfund, told Quartz. “SoftBank outside India has made very deep, long-term visionary bets on broad technologies. SoftBank in India has actually made shallow bets, which are probably more driven by momentum.”

SoftBank did not reply to a detailed questionnaire from Quartz on how it views such comments. “SoftBank is very bullish on India and we plan to stay invested and help all our portfolio companies here grow and prosper,” a company spokesperson told Quartz.

On Jan. 4, Sumanth Raghavendra, founder of Deck App Technologies, a software startup, tweeted that The Times of India’s decision to name Arora investor of the year was “egregious.”

“Anyone can tell you that a VC (venture capitalist) is measured only by one of three things. First and most importantly, realised gains—Nikesh’s score for 2015 is zero, but given that SB (SoftBank) is not a pure VC as such, let’s gloss over it,” Raghavendra explained in subsequent tweets.

“Second, is mark-ups—has any co (companies) of his followed up with rounds at steep markups lead by external investors…none that I know of. Finally, impact on ecosystem—some fundamental change in investing philosophy or outlook…Arguably none of Nikesh’s bets have had any such impact (yet). Of course, the terrible lessons from Housing notwithstanding…,” he added.

Arora took the remarks in his stride.

Investment after investment

On Jan. 21, SoftBank said it would invest Rs100 crore in real estate portal Housing.com. This is its second disclosed investment in the Mumbai-based startup. In December 2014, SoftBank had pumped in $90 million (Rs570 crore) into it, becoming the largest investor in the Mumbai-based company.

Even though SoftBank has been bullish on the company, Housing.com has been firefighting issues ranging from the dramatic exit of Rahul Yadav, a cofounder and former CEO, to employee layoffs.

“Investment after investment, SoftBank has not done so great in India,” Seedfund’s Murthy told Quartz. “While Masayoshi Son has an admirable track record, I am not so sure of SoftBank India, which seems to be largely full of duds as of right now.”

This is what SoftBank’s India portfolio currently looks like, according to data provided by Tracxn:

Many companies in SoftBank’s India portfolio are in the news for wrong reasons.

Housing.com: Just three months after SoftBank’s first investment in Housing.com, in December 2014, the startup spent over Rs120 crore on a marketing blitzkrieg. The cash-burn evoked criticism, as Housing.com—like most of its peers—was (and still remains) far from profitability.

For fiscal 2015, Housing.com posted a net loss of Rs279 crore—six times its loss in the previous fiscal. Its total revenue during the year was Rs12.7 crore. Its competitor, CommonFloor (now acquired by Quikr), reported a loss of Rs86 crore and revenue of Rs45 crore in the same period.

In subsequent months, the startup was mired in controversies involving its cofounder Yadav. He first wrote a rude email to Sequoia Capital managing director Shailendra Singh. This was followed by another scathing email to Housing’s own investors. Yadav then sent an internal email that attracted a Rs100-crore legal notice from India’s largest media house, Times Group. In the internal email, Yadav alleged that the Times Group was out to “malign” Housing.com.

In July 2015, Yadav was finally fired from his own company. But Housing.com’s troubles did not end. It laid off around 800 employees in two tranches—in August 2015 and November 2015.

“Housing.com is in a no man’s land right now. It’s all over the place, lacks strong leadership and needs to take a stand on its direction in the next financial year, otherwise its future is in trouble,” Sanchit Gogia, chief analyst at Greyhound Research, a research and advisory firm, told Quartz.

OYO Rooms: SoftBank led a $100-million investment round in the then two-year-old budget hotel rooms aggregator in August 2015. Since OYO Rooms’ inception in 2013, its 22-year-old founder and CEO, Ritesh Agarwal, has been widely celebrated for being one of the country’s youngest entrepreneurs.

But in January 2015, an investigative report in the Mint newspaper exposed several incidents that reflected poorly on OYO Rooms and its team. The report said that Agarwal had made false claims on his resume and even wrongfully booted out a cofounder. The Mint said that Agarwal had purchased the platform on which OYO Room works from NCrypted Technologies, based in Rajkot, Gujarat. Agarwal had till now  presented himself as a “coder.”

According to Gogia of Greyhound Research, the startup is “trying to grab whatever it can get, without focusing on any one segment.”

“That’s not a strong fundamental for a business. That’s not how businesses succeed,” Gogia said.

Grofers: SoftBank invested $120 million in the on-demand groceries delivery startup in November 2015. Even though on-demand startups are red hot in India, this Gurgaon-based company reportedly shut operations in nine cities in January. The company said its business in these cities was not growing as expected.

“The Housing.com issue became so big and SoftBank, one of the investors, did nothing. It was a pretty immense issue. And in Grofers, the basic model itself was suspect,” Murthy said. Founded in 2013, Grofers was initially supposed to focus on the business-to-business segment, before it changed its model in early 2015 and became a hyperlocal business-to-consumer delivery startup. “We have made a lot of mistakes before arriving at a viable business proposition,” Grofers’s cofounder Albinder Dhindsa had told YourStory in April 2015.

Silver lining

But  SoftBank’s India portfolio  also includes two companies that are among the leaders in their segments—Ola and Snapdeal.

Ride-hailing startup Ola was one of the best-performing startups in India during 2015. Among other things, the company acquired competitor TaxiForSure in March 2015, raised $1.2 billion in the year ending November 2015, and brought on board China’s leading taxi-hailing company, Didi Kuaidi, as an investor.

In December 2015, Ola also entered into a partnership with global players like Didi Kuaidi, Lyft, and GrabTaxi to allow users to book cabs from each other’s apps in all the regions where they operate.

All these moves have strengthened Ola’s position against competitor Uber.

“Ola has picked up the right battle and gone after that. They have focused really well on the core thing and look at the end product; their user interface is brilliant and it’s a great app,” Gogia of Greyhound said. “Another thing that stands out for Ola is that the company has been able to move the ecosystem (drivers and regulators) with it and done that very well. I think Ola is a great investment.”

Similarly, Snapdeal performed well during 2015. For the year ended March 2015, Gurgaon-based e-commerce startup reported a 301% jump in gross merchandise volume (GMV)—the total value of goods sold through a marketplace—at around $2 billion.

At the end of August 2015, its cofounder and CEO Kunal Bahl told The Economic Times that his company had achieved a GMV of $4 billion and was all set to topple sector leader Flipkart. “The one thing I am very, very clear about right now is that I think we’re going to be number one (in terms of sales) by March 2016,” Bahl said. “I think we’re going to beat Flipkart by then.”

Focus on execution

Having invested aggressively through 2014 and 2015, Arora believes Indian startups will have to focus on execution in 2016.

“Valuations (went up) very quickly in 2015. I am sure in 2016 we are going to see some mishaps and it is going to be the year of execution,” Arora reportedly said at the Indian government’s Startup India event on Jan.16. ”In the last two weeks, we have seen that a higher degree of risks has come into the market, so there is a little bit of trepidation and caution.”

On Jan. 9, Arora tweeted:

Surely, it’s easier said than done.

Correction: A previous version of this post incorrectly mentioned that the Mint newspaper’s investigative report on OYO Rooms was published in December 2015. It was, in fact, published in January 2015. 

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