Asian startups hibernate after SoftBank loses money?

SoftBank’s $ 9 billion loss in investments like WeWork is bringing a ripple effect on the Asian technology picture. Startups are rushing to change their business plans amid a new “technology winter” when they can no longer rely on Mr. Masayoshi Son’s endless capital.

From Indonesia to India, tech companies have recently pursued a growth strategy at all costs tightening, taking “lucrative” a new mantra, according to the results of interviews with executives and staff at SoftBank-supported companies across Asia.

SoftBank Chairman and CEO Masayoshi Son stands in front of a list of Vision Fund investments at a Vision Fund press conference in Tokyo on November 6 when the company reported a loss of US $ 6.4 billion. . Photo: Nikkei

Tokopedia, Indonesia’s largest online shopping mall, once said that the company doesn’t have a specific time to reach the breakeven point and make a profit. The company will continue to invest in growth because “there is a person like Mr. Son who constantly changes the world with his vision,” the company founder and CEO William Tanuwijaya of Tokopedia told reporters. Nikkei Asian Review newspaper in January.

Tokopedia now seems to have changed its tone. The company aims to “break even” next year, a company spokesman said. “As a technology company, we believe that growth and sustainability should go hand in hand, and we have prepared and planned to achieve this goal from the beginning.”

The sudden change of voice after the reversal of fortunes of SoftBank and the Vision Fund of $ 100 billion came after the Group’s Son Son announced a loss of 6.5 billion in the second quarter of 2019 of the company – a bad level. worst ever.

The loss is the result of two years of insane investment agreement signing, whereby Vision Fund has poured billions of dollars into Asian startups – from Chinese tech car hailing firm Didi Chuxing. , to Indian fintech firm Paytm, South Korean e-commerce firm Coupang, Indian hotel chain Oyo and Singapore-based ride-hailing firm Grab – all of which are believed to be operating at a loss.

Recently, however, all hopes of this abundant supply of capital faded away when Son announced that Vision Fund would “not invest for the purpose of bailout, and the financial situation of the companies in the portfolio.” Our investment must be independent. ”

“Concerns about a hibernation are on the rise in the startup world, as we witness the struggles of SoftBank’s WeWork,” said Aldi Adrian Hartanto, chief investment officer at MDI Ventures-based in Jakarta, said. “Companies are either turning to profit-focused, or accelerating fundraising efforts to survive within the next 12-24 months.”

The hibernation of tech startups – which may have an impact on pricing not only in Asia but also globally – begins seriously in the late summer of 2019, when WeWork’s share price catches up. swayed head and then plunged.

A few weeks later, in mid-September, Mr. Ritesh Agarwal, founder of Indian hotel startup Oyo Hotels & Homes and a close relationship with Mr. Son, directed executives at the Japanese branch. You need to closely monitor profit and loss.

That’s the incredible change of direction for the 25-year-old businessman, who often talks about plans to “rapidly scale up the business” to create the world’s largest franchise hotel system. Another particularly noticeable move is that, after recruiting hundreds of employees in Japan in less than six months, Mr. Ritesh Agarwal now wants to stop hiring all non-business related employees. .

Grab called SoftBank, which invested $ 3 billion, is also focusing more on profit. This losing company has spent a lot of capital on expanding its market share.

But Grab appears to be focusing more on higher-margin businesses, such as food delivery. Especially when Uber’s US “colleague” – also being supported by SoftBank and had to sell its Southeast Asia business to Grab last year – is struggling with exponentially increasing losses. and stock prices fell.

Although Grab collects 20% of its revenue from rides, its food delivery – which accounts for a fifth of the company’s total merchandise value – has a profit margin of over 30%.

Mr. Son’s approach has changed markedly – earlier this week he emphasized that “there is no change in policy”, while at the same time he also says “free cash flow”, a key measure of profits. , is the Vision Fund’s most important performance measurement basis – and this has not been overtaken by analysts.

“SoftBank Group announced that they will now focus on investment and financial discipline through a review of profitability for each investment objective and not providing relief investments,” said Satoru. Kikuchi, an analyst at SMBC Nikko Securities, noted the company’s clients. ”

However, not all startups are changing their strategies accordingly.

Coupang, a South Korean e-commerce company that SoftBank invested $ 2 billion last year, said it had no change in its strategy or relationship with SoftBank.

The company reported operating losses of 1.1 trillion won ($ 1 billion) last year, with sales of 4.4 trillion won, and said it would continue to “invest in new services”. , like Rocket Delivery, Coupang e-commerce platform and food delivery service Coupang Eats.

Even for SoftBank’s non-capital competitors, the way the extravagant money distorts the market is distorted, any narrowing in the way these firms spend freely will be good news.

That is especially important if SoftBank’s firepower is completely depleted. In late October 2011, Mr. Son said that the first Vision Fund had “completed the investment phase”, but declined to comment on further efforts to build an even bigger Second Vision Fund. from investors who are increasingly skeptical.

“If the Vision Fund 2 does not happen, then it will be a major change in the ecosystem,” said a venture capitalist in India. “The glory days are over – that is without a doubt.”

That’s the incredible change of direction for the 25-year-old businessman, who often talks about plans to “rapidly scale up the business” to create the world’s largest franchise hotel system. Another particularly noticeable move is that, after recruiting hundreds of employees in Japan in less than six months, Mr. Ritesh Agarwal now wants to stop hiring all non-business related employees. .

Grab called SoftBank, which invested $ 3 billion, is also focusing more on profit. This losing company has spent a lot of capital on expanding its market share.

But Grab appears to be focusing more on higher-margin businesses, such as food delivery. Especially when Uber’s US colleague – also being supported by SoftBank and had to resell its Southeast Asia business to Grab last year – is struggling with exponentially increasing losses. and stock prices fell.

Although Grab collects 20% of its revenue from rides, its food delivery – which accounts for a fifth of the company’s total merchandise value – has a profit margin of over 30%.

Mr. Son’s approach has changed markedly – earlier this week he emphasized that “there is no change in policy”, while at the same time he also says “free cash flow”, a key measure of profits. , is the Vision Fund’s most important performance measurement basis – and this has not been overtaken by analysts.

“SoftBank Group has stated that they will now focus on investment and financial discipline by reviewing the profitability of each investment objective and not providing relief investments,” said Satoru. Kikuchi, an analyst at SMBC Nikko Securities, noted the company’s clients.

However, not all startups are changing their strategies accordingly.

Coupang, a South Korean e-commerce company that SoftBank invested $ 2 billion last year, said it had no change in its strategy or relationship with SoftBank.

The company reported operating losses of 1.1 trillion won ($ 1 billion) last year, with sales of 4.4 trillion won, and said it would continue to “invest in new services”. , like Rocket Delivery, Coupang e-commerce platform and food delivery service Coupang Eats.

Even for SoftBank’s non-capital competitors, the way the extravagant money distorts the market is distorted, any reduction in the way these firms spend freely will be good news.

That is especially important if SoftBank’s firepower is completely depleted. In late October 2011, Mr. Son said that the first Vision Fund had “completed the investment phase”, but declined to comment on further efforts to build an even bigger Second Vision Fund. from investors who are increasingly skeptical.

“If the Vision Fund 2 does not happen, then it will be a major change in the ecosystem,” said a venture capitalist in India. “The glory days are over – that is without a doubt.