Failure
is an unpleasant fact for most startups. One in three new companies lose most
of the capital that investors have put into them. SoftBank is a bit closer to
that reality with Housing.com. The Indian property listings firm has fired
co-founder and chief executive Rahul Yadav six months after the Japanese
conglomerate became its largest investor. It’s a reminder of the inherent risks
in a rapidly growing part of SoftBank’s business.
Yadav
was a liability and the board had no choice but to remove him. The 26-year old
was in open conflict with his investors. In April, he wrote a resignation
letter attacking the board as intellectually incapable, which he later
retracted and apologised for. Then he pledged to give away his entire stake in
the company – worth up to $32 million – to employees. Yadav also taunted some
of the country’s most prominent business leaders through his Facebook page.
Housing.com
may benefit from Yadav’s removal. But it will be harder for the company to
succeed now that it has been forced to cut all ties to its founder. The fallout
raises the broader question of how many of SoftBank’s similar investments will
deliver a positive return.
The
Japanese company boasts of an impressive average 45 percent internal rate of
return on its internet company investments over the past decade. That includes
its enormously successful investment in Chinese e-commerce giant Alibaba, where
a total investment of just 10.5 billion yen ($85 million) is now worth $66
billion.
SoftBank
is ploughing ever larger sums into startups. It invested $627 million in Indian
marketplace Snapdeal in October. Last month, it bet $1 billion on South Korean
e-commerce group Coupang. Yet there is no assurance that bigger bets are less
likely to fail. And SoftBank’s returns on those that succeed are almost certain
to be smaller.
Unlike
most venture capital investors, SoftBank is a listed company. Its $70 billion
market capitalisation owes more to its telecom businesses and its holdings in
listed companies than to potential new hits. Yet the drama at Housing.com
underscores that SoftBank’s startup splurge is not without risks.
Citation From Reuters : http://goo.gl/qHvZXr
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