As SoftBank Corp was finalising deals to infuse capital in online retailer Snapdeal and taxi aggregator Ola last month, the Japanese Internet and telecom giant also made an offer to buyout shares of angels and some early venture-capital investors in both companies, according to multiple sources familiar with the matter. Most of them said no.
It may not have been an easy offer to refuse as some of these early investors are sitting on returns of 100 times their investment on paper. They, however, see the value multiplying further.
"I haven't sold any shares so far. If someone is offering a valuation which I expect the company to reach in the next one-two years, then I can think about it," said People Group founder Anupam Mittal, one of the early backers of Ola. Investments like Ola come once in a lifetime, he added.
Mittal's decision underlines what has become a norm, of early capital investors holding on to their winners in risk capital business where returns come from a few portfolio companies. According to data from financial research platform VCCEdge, Indian e-commerce and online businesses have seen 694 investments totaling $5.56 billion since 2011. But there have only been 45 exits worth $295 million in that time.
Ola, which is competing with global giant Uber and others in India, has seen its valuation increasing more than 10 times in the last 12 months. When the company announced its second round of funding in November 2013, it was valued at $40-50 million, according to sources. In July this year, it was valued at around $180 million when Hong Kong-based hedge fund Steadview Capital led a funding round. The latest investment from SoftBank gave the four-yearold startup post money valuation of nearly $650 million, perhaps underlining why the early investors are holding on to their bets.
Besides Mittal, Ola's early backers include investor Rehan Yar Khan, Powai Lake Ventures and Snapdeal co-founders Kunal Bahl and Rohit Bansal. These angels had together pumped in .`2 crore in a few months after the company was founded in 2011. These investors are said to be sitting on more than 100 times their investment, which was primarily a bet on IITBombay alumni Bhavish Aggarwal and Ankit Bhati's ability to execute their vision.
"There was an offer from Soft-Bank to the angel investors but none of them sold. They feel that it's a multi-billion-dollar opportunity now and why should I sell even a single share today," said another person involved in Ola's fundraising.
A SoftBank spokesperson said: "We are not able to comment on investment details beyond what has been announced." Snapdeal and Ola declined to comment.
Sources indicated that early VC investors in Snapdeal, which had a post money valuation of nearly $2 billion in the latest round, are sitting on at least 8-10 times returns on the capital invested. These investors see potential for the company's valuation reaching $5-10 billion in the coming years.
While none of the investors in Snapdeal is completely exiting, Bessemer Venture Partners, who invested in the company three years ago, has made a partial exit in this round. The VC firm sold less than a third of its holding. Bessemer had invested in the company in 2011 at a valuation of $170-180 million and could make a profit of around five-six times the investment, said sources.
Bessemer Managing Director Vishal Gupta didn't respond to an email seeking comment. Sources familiar with SoftBank's dealmaking said it typically looks to buy 30-35% in a startup, and usually makes a secondary offer after an initial investment to meet the target.
"Kunal (Bahl, Snapdeal co-founder) made a request to all the existing shareholders to sell some part of their shares to help Soft-Bank meet their shareholding requirement," said a Snapdeal investor on condition of anonymity. Some of the largest shareholders like Kalaari Capital are holding on to their investment.
"We believe in the long-term potential of Snapdeal. We are not sellers at the current valuation," said Vani Kola, managing director of Kalaari Capital. Her firm had invested in when Jasper Infotech, Snapdeal's holding company, was still in its early avatar of discount coupon startup Moneysaver in 2009.
Limited partners, or investors in VC funds, say the venture market is just finishing its first cycle. "Indian venture capital is still at the earlier stages of its evolution, with the first 10 venture-backed $1-billion-plus companies just created in India. Therefore, there are a few more years to go for us from now, before we see very good cash returns," said Anand Prasanna, managing director at Morgan Creek Capital. "This is not dissimilar to what we saw in other markets like China."
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