“Overpaid and underperforming”: An anonymous investors’ letter lashes out at Nikesh Arora, hero of Indian startups

Some serious criticism there.
Some serious criticism there.
Image: Reuters/Issei Kato
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One of the most celebrated investors in the Indian startup ecosystem has run into trouble.

A group of investors in Japan’s SoftBank Group are seeking an investigation of the group’s India-born president, Nikesh Arora.

In an 11-page letter (which can be found in full below) dated Jan. 20, investors voiced concerns over conflict of interest, poor performance of investments, and Arora’s high compensation. According to Bloomberg, Arora was the world’s third-highest-paid executive last year.

The letter was issued by US-based law firm Boies Schiller & Flexner on behalf of unidentified shareholders, who have not disclosed their holding in SoftBank group. Quartz has obtained a copy of the letter.

SoftBank confirmed to Quartz that it had received such a letter from a US law firm. The group said the letter made “unsubstantiated allegations” against Arora.

“I have complete trust in Nikesh and 1,000% confidence in him,” SoftBank chairman and chief executive officer Masayoshi Son said in a statement provided to Quartz.

Arora—who joined SoftBank in 2014 after a nearly decade-long stint at Google—is the second-in-command at SoftBank. In May 2015, chairman Son—one of the richest men in Japan—named Arora his heir apparent.

Arora is widely credited for channeling SoftBank’s funding to India, Asia’s third-largest economy; most of the group’s Indian investments happened after he joined. SoftBank is now one of the largest investors in the Indian startup sector, having plowed over $2 billion into companies like Snapdeal, Ola, InMobi, OYO Rooms, and Housing.com.

What’s in the letter?

The letter questions if Arora has a conflict of interest, as he serves as a senior adviser to private equity firm Silver Lake. However, SoftBank told Bloomberg that it is aware of Arora’s position at Silver Lake and is comfortable with his involvement there.

Shareholders have also criticized Arora for poor investment performance and several questionable transactions. Among others, the letter cites as a failure SoftBank’s investments in Indian real estate portal Housing.com, which ran into troubles shortly after SoftBank’s investments. The letter also questions SoftBank’s decision to lead a follow-up funding round in Indian e-commerce major Snapdeal, at a time when the company’s CEO had told the media that his venture was “exceptionally well-funded at least for a few years.”

“Arora’s investment strategy … appears to be nothing more than throwing a dart at a dartboard,” the letter reads. “How many more millions of dollars of shareholder value must be wasted before the board realizes something must be done?”

The investors’ letter also questions Arora’s compensation, calling it “alarming and intolerable.” Arora received compensation valued at around 16.6 billion yen ($135 million) for the seven months that ended March 2015.

“Nothing in Mr. Arora’s history at SoftBank could possibly come close to justifying such a vast transfer of shareholder value,” the letter said. “… The only reasonable explanation is that the board has done little more than throw money away at an unproven executive with no actual accomplishments to point to during his tenure at the company.”

The letter calls for an investigation into the matter within 60 days, failing which investors may pursue legal action. The 60 days ended last month and law firm Boies Schiller has said it has not received a response. The firm is now “actively considering” its next move, Bloomberg reports.

Editor’s note: Silver Lake in the past has disputed a report that it sold 45% of its stake in Alibaba as the stock fell in January 2015, as claimed in the letter below. In May 2015, the firm issued a statement saying its fund continued to hold 85% of its original stake in Alibaba.

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Also read: Are we celebrating SoftBank and Nikesh Arora too soon?