Speculation about Flipkart’s acquisition by Walmart had reached fever-pitch in India on May 9, a Wednesday. A deal would have far-reaching implications for the country’s startups.

In faraway Tokyo, Masayoshi Son, the influential SoftBank chairman, dropped a bomb during an earnings call for his company. “Walmart has purchased Flipkart,” he said. That announcement was not his to make. As flustered minders tried to cover up Masa San’s apparent slip, matters only got worse. “Maybe I should not have mentioned that,” Son said, adding, “Well, I can’t take it out.”

When the announcement eventually came from the rightful quarters in Bentonville and Bangalore, Son’s enthusiasm was placed in context. SoftBank’s $2.5 billion (Rs 16,632 crore) investment in Flipkart had turned into $4 billion (Rs 26,611 crore) in just 8 months, in a market where big cheques and big exits are both elusive.

SoftBank is now a looming figure in India’s startup scene. It’s the rare investor currently with the appetite and the ability to cut big cheques. And coming off two fiscals when venture capital funding had virtually dried up, the presence of an investor looking to invest billions of dollars would normally be welcomed without reservation. Except, SoftBank’s size, strategy and methods all complicate matters. Whether you are an entrepreneur or a rival investor, a number of people ET Magazine interviewed say, there are reasons to be wary.

Some observers worry that SoftBank’s sheer financial heft can skew India’s startup ecosystem by putting too much power in one investor’s hands. “They can effectively play kingmaker, because of the capital they have,” says Anupam Mittal, founder of Shaadi.com and an angel investor in some 100 startups. “They can also control the destiny of companies in ways that may at times conflict (with the vision of ) the entrepreneur.” Mittal was an early backer of Ola, now a SoftBank investee company.

A Mixed Bag

SoftBank has more than $8 billion (Rs 53,222 crore) invested in India. The returns, so far, have been mixed. Snapdeal and Housing.com have virtually disintegrated, while Paytm, Oyo and a rejuvenated Grofers, have prospered, even as Son and his crew have fine-tuned their approach.

There is still some turbulence. For instance, recent investments appear to have been beset by delays. At Ola, the cab aggregation company, a $2 billion round from investors including SoftBank was announced in September 2017. The company’s filings to the Registrar of Companies in May this year don’t reflect that, however. An Ola spokesperson told ET Magazine that the company has received the investment.

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For Paytm, a $ 450 million (Rs 2,993.73 crore) investment in Paytm Mall, led by SoftBank, has seen deal terms change thrice in the past few months , according to people familiar with the process. Paytm did not respond to requests for comment.

Some of this might be on account of the shift in the source of investment. Since the formation of the $100 billion SoftBank Vision Fund in 2016, Son’s India investments tend to be routed through that vehicle. There’s a difference in the intent and patience of that money, compared with Son’s own. SoftBank Vision Fund has socalled limited partners, people or institutions that have invested money, expecting high returns. This means Son’s investments now carry similar pressures as other venture capital funds. They will look for exits within a fixed time frame, for one. The days when Son could act like he had infinite time and patience with his deals might be in the past.

SoftBank declined to make Son or a spokesperson available for an interview. A set of questions emailed to their representative was also unanswered.

Son’s investment thesis has a strong bias towards startups that can define or dominate an industry. It’s a tough and high-risk pursuit, that can sometimes clash with the interests of the entrepreneurs involved.

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After stumbling with Snapdeal (now worth a sliver of its peak valuation) and Housing (severely hobbled to the point of a firesale, thanks to a mercurial founder and CEO), SoftBank has sought to steady its ship. After the Flipkart exit, a major play is Paytm. Through Paytm Mall, the group hopes to build a strong third player in India’s burgeoning e-commerce market, slated to hit $200 billion by 2026, according to Morgan Stanley estimates.

Investors worry about losing their cachet and bargaining power, under SoftBank’s shadow. But simultaneously, SoftBank also represents an opportunity, for exits.

“They are out-thinking many of us, not with the price or premium they’re paying, but with the size of their investments,” says the executive director of an early stage investor, who asked not to be named. “The challenge for us is to keep pace with them, while also keeping in mind they could be a key source of exits for our investments.”

A lack of returns for venture-funded deals has been a key constraint for India’s startups. While a few older firms such as Makemytrip, Info Edge and Just Dial managed to go public, providing an exit option, most ventures and their investors have had to lean on secondary sales to other funds to make their money.

Entrepreneurs also have reason to view SoftBank similarly — with cautious optimism.

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Several entrepreneurs who spoke to ET Magazine on background, said that Son’s billions are needed not just to fund companies, but to push consumers to change their online behaviour and adapt to the internet — and the commerce it powers — faster. This needs large pools of capital that are not on offer from many corners.

The Indian allocation of SoftBank, at around $10 billion, is much bigger than any other marquee investors including Sequoia Capital and Accel, two of the most aggressive startup backers here and globally.

But that money can come with riders.

Anand Lunia, cofounder of India Quotient, an early stage investor, says SoftBank gives Indian startups an opportunity to raise a large amount of money, but asks for plenty in return. “There are few investors who can match this heft at series B and C (names for latter rounds of $10 million or more raised by startups),” he says. “This will potentially allow SoftBank to play a domineering role in these companies.”

When it invested in Housing, the online real estate venture, it pared the founders’ share from around 40% to barely 10% in one fell swoop. When the cofounder-CEO self-destructively turned against the investors, some observers pointed fingers at the aggressive deal-making for leaving the founders with too little skin in the game, and then letting them run the company aground.

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Since then, there have been signs of maturity. With Paytm, for instance, it has signed a pact that ensures SoftBank doesn’t invest in a competing startup for the next seven years. “This is a quite a departure from the way SoftBank likes to do business, where it often seeks to invest in two or more competing businesses,” a partner of a mid-sized VC fund in Bengaluru said, asking not to be named.

Uneasy Matchmaking

Entrepreneurs who compete with a SoftBankbacked firm can sometimes suddenly and mysteriously find the going getting tough. Platforms and aggregators, for instance, might treat Son’s investee companies favourably, to their rivals’ detriment. Because, who wants to be on the wrong side of all manner of access — to funds, global linkages and co – investment opportunities?

In hospitality and travel, for example, SoftBank is a backer of Oyo, the technology platform for an assortment of accommodation. Oyo’s rivals Treebo and Fab Hotels found themselves de-listed from Makemytrip’s influential platform suddenly. There’s been speculation of Oyo merging with Makemytrip.

Oyo founder and CEO Riteish Agarwal didn’t respond to messages seeking comment. Deep Kalra, Makemytrip’s CEO, said his firm had a pre-existing partnership with Oyo and couldn’t comment, as a listed entity, on future plans.

Then there is the matter of seeking industry domination through synergies between investee companies, which are sometimes rivals.

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Globally, SoftBank is known to flex this sort of muscle. For example, in ride sharing, it has been a keen votary of Uber’s moves to consolidate elsewhere and exit Russia, China and South East Asia. In China and SEA, Uber sold its operations to Didi and Grab, respectively. Both are SoftBank portfolio companies.

In India, too, its investments in Uber and arch-rival Ola have fuelled talks of consolidation. Ola CEO and co-founder Bhavish Agarwal has ring-fenced himself from any investor pressure to sell, by enhancing his voting rights.

In online grocery and ecommerce, too, SoftBank is making its influence felt. For instance, Big Basket, the country’s largest online grocer and a SoftBank investee, is figuring out the mechanics of selling some of its wares on Paytm Mall, another SoftBank investee.

“We are still thinking this through, it is too early to comment,” Hari Menon, CEO of Big Basket, said.

Grofers and Big Basket, two SoftBank portfolio firms, have been linked to each other by rumour for the better part of 18 months. While Grofers started with hyperlocal grocery delivery, it pivoted into conventional inventory-based business, as its original market imploded. Big Basket, meanwhile, is stepping on the gas with its private labels, with expansion into categories as diverse as meat and make up (cosmetics). Menon of BigBasket denied a merger was in the works.

Industry observers say that a surge of consolidation is inevitable, given SoftBank and Son’s focus on investing and dominating categories. “SoftBank, like other large investors, is here to back companies that want to dominate large markets,” Michael Marks, CEO and cofounder of technology firm Katerra, said on the sidelines of a fireside chat organised by ET recently in Bengaluru. “They don’t want to play in small niches … they have put everyone in the markets they are interested in, on notice.” Katerra, which uses technology to automate real estate development, scooped up almost a billion dollars from SoftBank last year.

In food tech, SoftBank could again play kingmaker, when it seals a deal to back Zomato, since its portfolio firm Ola had previously acquired Food Panda in India. Uber is also building out its food delivery service, Uber Eats, in India.

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Fears of Overheating

“Across categories and geographies, SoftBank has made it clear to fellow investors that it isn’t here to compete for the minor positions,” says Harish HV, an industry observer and former member of accounting advisory Grant Thornton’s India leadership unit.

Some players say discerning entrepreneurs should prioritise support through the lifecycle of their company from an investor, rather than large cheques.

“Their (SoftBank’s) heft makes entrepreneurs look at investors with the singular lens of how much funding they bring in, without looking at their track record of supporting companies throughout life cycle through good and bad times,” says K. Ganesh, co-founder of Growth Story and a serial entrepreneur. He was an early-stage investor in BigBasket and remains invested.

After funding tightened for two consecutive years between 2015 and 2017, this year has seen entrepreneurs breathe a little easy, as some semblance of normalcy has returned. Several investors have raised fresh funds for their India units, with Sequoia and Accel leading the way.

Despite the easing in fund availability, entrepreneurs remain guarded about SoftBank, with most declining to be named or their companies identified in interviews. “We can’t afford to rub SoftBank the wrong way,” the sales chief at a leading travel startup says. “They could be an exit option for our investors or one day lead a big round (of investment) for us.” This firm competes with Oyo, a SoftBank portfolio firm.

Ganesh of GrowthStory also worries that SoftBank’s aggression could result in the creation of yet another bubble, similar to what happened between 2014 and 2016. “We have already seen it in action — what happens when too much money is hastily deployed, without a fundamental business case, just to beat all other investors. It hurts the ecosystem,” he s ays. “Many companies got disproportionate funding but when these funds retreated, they were stuck having raised money at high, unsustainable valuations and had to shut down or get merged or acquired at a pittance.”

As India’s startups enjoy the green shoots of a funding resurgence, SoftBank’s looming presence is occupying a lot of mindspace. Its steps will be closely watched.

As for Son himself, he thinks his company is exceeding its targets here. “We would definitely overachieve on our commitment much ahead of time and at a much bigger scale,” he told ET in April.

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