Over the last five years, while Tiger Global has invested a total of $2 billion in India, over the last year, Softbank has invested a total of $1 billion in India between four companies—one-tenth the number in Tiger’s portfolio.
E-commerce in India is more than just a new way of shopping. It is war. But who is the fight between? Is it Flipkart vs Snapdeal? Is it the world’s largest (Amazon) vs foreign-owned but India-made start-ups (Flipkart and Snapdeal)? Is it America’s largest (Amazon) vs China’s largest (Alibaba and JD.com)? Is it inventory-cum-marketplace e-commerce (Amazon) vs hyper-local marketplace (TaoBao)? The answer is none of the above. The best e-commerce rivalry award goes to Tiger Global vs Softbank Corp.
The rivalry between Tiger and Softbank is no secret in the Chinese e-commerce market. Softbank-backed Alibaba had not let Tiger invest pre-IPO while they let DST invest despite their stake in rival JD.com. Tiger had to buy a position through publicly listed Yahoo which, in turn, owned a stake in Alibaba. Since enemy of enemy is friend, Tiger had brought in Alibaba’s arch rival Tencent as investor in their e-commerce bet JD.com to up the ante. As the rivalry was unfolding in China, both Tiger and Softbank saw India emerge as the third-largest economy. The double-digit and growing Internet penetration suggested that it was the right time to make a decisive move. Mutual rival Amazon’s India entry in early 2014 gave further impetus to that decision.
After JD.com’s IPO in May 2014, Tiger invested a billion dollars in Flipkart. After Alibaba’s IPO in September 2014, Softbank invested $627 million in Snapdeal. Since the slowdown in the Chinese economy at the end of August, Alibaba and JD.com dipped as low as 40% and 50% from their peaks, respectively. There has been a 10-15% recovery in October due to artificial stimulus by China and strong earnings by US tech companies but the future remains uncertain for Chinese stocks listed on Nasdaq. Since the slowdown, Tiger has gone quiet in India and not placed any new bets. Meanwhile, Softbank is in a race to deploy an additional $1 billion in start-ups even as opportunities remain sparse and pre-mature.
A Softbank investment that is particularly interesting is hyperlocal e-commerce company Grofers. While the deal is still in diligence, it is rather odd that a Tiger portfolio company that was looking to raise $50 million was instead pledged $100 million by Softbank.
The $50 million ask was going around suggesting that Tiger did not want to lead a follow-on investment. The company had also been in talks with Flipkart for an acquisition, suggesting that Tiger wanted to force a consolidation in its e-commerce portfolio, just as it had with Letsbuy in 2012 and Myntra in 2014. Neither funds nor lead acquirer took the bite, then why is Softbank doubling up with Grofers? It is odder because Softbank’s e-commerce bet Snapdeal has recently led an investment in Grofers competitor PepperTap.
With this move, Softbank gets a position in the top two companies in hyperlocal commerce. Besides, the investment buys Softbank pole position in a market category that most closely resembles China’s top consumer e-commerce play—TaoBao. Alibaba’s TaoBao has a strong hyperlocal element and seems to trump JD.com’s inventory-led approach as the top national e-commerce player in China.
Is Softbank blocking and tackling Tiger in a market space that both consider the next phase of the e-commerce wars in India—hyperlocal commerce? Is Softbank preventing the market leader (by gross merchandise value, or GMV) from going to rival e-commerce firm which is also the market leader (by GMV)? Is Softbank asserting ownership of their territory and fiercely keeping other big cats away?
Over the last five years, Tiger has invested a total of $2 billion in India. Over the last year, Softbank has invested a total of $1 billion in India between four companies, one-tenth the number in Tiger’s portfolio. Is Softbank in a race to match Tiger for dollar to dollar in funds deployed?
Meanwhile, the Amazon stock has doubled in the last 12 months on the back of strong earnings and cash flows. Amazon has been quietly gaining traction in India with the best unit economics among the top three players.
Rivalries make people do funny things. It is common knowledge that the US public markets are volatile, Chinese market is slowing down, and Indian market is early. In the past two months, funds and entrepreneurs have re-aligned their plans with changing times. However, Softbank has carried on with business as usual. There is an apocryphal Chinese curse “May you live in interesting times”. Blessed or cursed, India is certainly affected and living it.
Kashyap Deorah is the author of upcoming book The Golden Tap: the inside story of hyper-funded Indian startups. Deorah is a serial entrepreneur who has spent the last 15 years in India and Silicon Valley. During this time, he has started and sold three companies. He tweets at @righthalf.