SoftBank’s $650 million injection to value Snapdeal at $2 billion

SoftBank Corp is set to invest up to $650 million in Snapdeal in a deal that could see it become the largest shareholder with a nearly 35% stake in India’s second-biggest online retailer and is expected to be solemnised in the last week of October when the Japanese mobile and internet giant’s founder and CEO Masayoshi Son visits India.

Multiple sources familiar with the transaction have told ET that the latest round of fund-raising, which will leave Snapdeal with a valuation of around $2 billion, could also see Nikesh Arora, former Google board member and now vice-chairman of SoftBank, pick up a 5% stake in his personal capacity and be appointed to the Indian company’s board, possibly as its non-executive chairman.

“The deal is almost done. The big visit of (SoftBank founder) Son to India is in that direction,” said one source, who has been directly involved in the discussions. Son, 57, who is Japan’s richest man with a net worth of around $22 billion, will be in India on October 27 and 28 for a visit that could also see him call on Prime Minister Narendra Modi, the latest in a series of high-profile international business leaders to do so. At least two other sources confirmed that a deal had been all but sealed and would be announced in weeks.

An investment by SoftBank, which has already invested in a bunch of Indian startups, most notably InMobi, and has a joint venture with the Bharti Group, will at one stroke make it a serious player in India’s online retail sector. It will give the Japanese firm, already the biggest investor in China’s ecommerce behemoth Abibaba with a 32% stake, a strong foothold in the Indian market, which like China offers phenomenal headroom for growth with its billion-plus population that is fast embracing shopping on the internet.

The investment in Snapdeal by SoftBank will be the Japanese firm’s single largest to date in the country and will also rank as a big endorsement of the market potential for e-commerce in India which has lured several big investors.

In late July, a clutch of investors led by US-based Tiger Global invested $1 billion in Snapdeal’s bigger rival Flipkart, valuing it at around $7 billion. Another rival, US-based e-tailing pioneer Amazon Inc, has pledged to invest $2 billion in its Indian operations.

SoftBank declined comment on the deal while a statement from Snapdeal said: “This is speculation and we don’t comment on speculations”. Nikesh Arora also declined to comment when asked about his purported investment and his possible chairmanship.

A fund-raising by Snapdeal, which was founded by schoolmates and friends Kunal Bahl and Rohit Bansal in 2010, has been the subject of feverish speculation for weeks now, especially ever since its rivals managed to put together a massive war chest to fund their aggressive expansion plans in India’s fast-growing online retail market.

On Wednesday, Reuters News reported that Snapdeal, which already counts former Tata Group chairman Ratan Tata and Wipro Chairman Azim Premji’s family in vestment firm Premji Invest among its shareholders, is close to raising $600-650 million from existing investors led by SoftBank, although ET has learnt that SoftBank and, at most, Arora will be the only investors in this round.
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“The temptation is to raise as much or over $1 billion, but it’s more likely that this round will only see Soft Bank invest,” said another person familiar with the discussions who also pegged the amount involved at around $650 million. Multiple sources pegged the pre-money valuation at around $1.2 billion and a postmoney valuation of around $2 billion.

Other sources said the transaction could see some of Snapdeal’s early institutional backers such as Kalaari Capital, Nexus Venture Partners and Bessemer Venture Partners not participate in the latest fund-raising round and even partially exit the company.
There are large investors keen to put capital and given the size of this fund-raise, we will not do much of a dent,” said an executive at one of the venture capital firms.

Snapdeal, which began life as a discount coupons site and then metamorphosed into an online marketplace that now has more than 50,000 sellers, has an investor roster that includes eBay, Intel Capital, Temasek, BlackRock and Tybourne, most of which have bought into the company at one of its many funding rounds.

Experts said a deal with SoftBank, coming at a time when the sector has attracted negative publicity, hostility and government scrutiny, could help underline the red-hot characteristics of India’s ecommerce sector. “If true, this only shows that the appetite for putting big money by foreign investors in India’s ecommerce story remains very high. Global investors are betting on the market, not withstanding any negative publicity which has been moving about last couple of weeks,” said Arvind Singhal, chairman of retail and advisory firm Technopak.

Snapdeal last raised money in May this year when investors such as Temasek, BlackRock Inc, Myriad, Premji Invest and Tybourne stumped up $100 million at an estimated valuation of $1 billion.

The company has raised a total of $320 million from investors in its various rounds, of which $233 million was secured this year over two rounds. Industry experts expect SoftBank, which was one of the earliest backers of Alibaba having funded its founder Jack Ma some 15 years ago, to get the Chinese firm and Snapdeal to possibly collaborate, share best practices and explore synergies. SoftBank, which was also an early investor in Yahoo, has a trophy investment in Alibaba. Its stake in Alibaba was worth more than $70 billion when the company listed in New York last month.