SoftBank-funded Indian startups have implemented a “total defence” approach over the last 15 months to navigate the funding slowdown. They have reduced costs by 50-75% since the start of 2022 to extend their runway by at least 12 months. This cost-cutting measure includes laying off thousands of employees, reducing employee benefits, and cutting expenditures such as advertising.
Cost-cutting measures
The median cost-cut among SoftBank’s portfolio companies is 70%, with some of its most heavily funded unicorns, including Unacademy, Meesho, Swiggy, and Cars24, reducing costs the most. The companies have collectively reduced their workforce by over 5,000 employees to save costs. They have also taken a number of operational cost-saving initiatives such as scrapping free meals for employees, shuttering operations in non-core countries, and integrating their grocery business unit into their core application.
Impact of cost-cutting measures
These cost-cutting measures have helped SoftBank-funded startups to bring down their monthly burn rate significantly. For instance, Unacademy’s monthly burn rate has decreased to about Rs 20 crore from over Rs 200 crore in 2021. Cars24’s monthly burn rate has fallen to $6-8 million from over $22 million a year back, and that of Swiggy’s has come down to $20 million from about $45-50 million. Meesho has cut its monthly burn rate to $4-5 million from about $40-45 million in peak 2021.
Profitable portfolio companies
While most of the companies that slashed costs had huge losses on their books, some of SoftBank’s profitable portfolio companies have also reduced expenses significantly to improve operating and net margins, according to sources.
No comments from SoftBank and startups
Cars24, Unacademy, Meesho, and connected 10 of its portfolio companies Swiggy did not respond to questions, and SoftBank declined to comment. SoftBank’s investee companies in India have implemented a “total defense” strategy in response to the funding slowdown. The cost-cutting measures are aligned with SoftBank’s conservative approach, which reduced investments by over 90 percent from April 2022 to March 2023. SoftBank’s CFO, Yoshimitu Goto, said during the recent earnings presentation that 94 percent of portfolio companies now have a runway of at least 12 months. SoftBank has not invested in an Indian company since July 2022.
Indian startups in SoftBank’s portfolio reduce costs by 50-75 percent
SoftBank’s Indian portfolio companies have reduced costs by 50-75 percent since the start of 2022. They have implemented cost-cutting measures such as layoffs, reduced employee benefits, and cutting expenditures on advertising. SoftBank’s heavily-funded unicorns, including Unacademy, Meesho, Swiggy, and Cars24, have cut costs the most. Companies supported by SoftBank have collectively reduced their workforce by over 5,000 employees in the last 15 months, resulting in significant cost savings.
SoftBank’s portfolio companies extend runway by over 20 months
The cost-cutting measures have allowed SoftBank’s portfolio companies in India to have a runway of more than 20 months, according to sources. This has enabled companies to navigate the funding downturn and prepare for difficult times ahead. SoftBank’s profitable portfolio companies have also reduced expenses to improve their operating and net margins.
Consumer-focused SoftBank portfolio companies might stop cost-cutting by June
SoftBank’s portfolio companies, especially the B2C (business-to-customer) firms, might stop their cost-cutting exercises by June as they prepare for a “very critical” festival season. According to sources, some of these companies might start investing in growth again if the festival season is good and they are able to show growth. They might look to raise funds by the end of this year for the next phase of growth, but this will depend on the macroeconomic situation.
SoftBank gradually shifts from ‘total defence’ to ‘offence’ mode amid challenging macroeconomic factors
SoftBank, along with other investors worldwide, has adopted a cautious approach towards high-growth investments due to various challenging macroeconomic factors such as rising inflation and supply chain disruptions. The instability in the global banking system has also affected overall investment sentiment. However, SoftBank’s CFO Yoshimitu Goto said the company is transitioning into “offence” mode and will take opportunities if comfortable with every aspect.
SoftBank prepares late-stage companies for potential listing
The SoftBank has taken a conservative approach to investing in India, but the Japanese investor has been preparing late-stage companies for potential listing. SoftBank has connected 10 of its portfolio companies in India, including Swiggy, Meesho, Unacademy, and Lenskart, with mutual fund houses in Bengaluru. Late-stage portfolio companies of SoftBank, with a cumulative fair value of about $37 billion, are “poised to list publicly,” according to Goto.
SoftBank reports massive loss on Vision Fund investment unit
SoftBank has backed 27 companies in India, including 20 unicorns, investing more than $10 billion through its two Vision Funds in the last seven years. However, it reported a massive loss of 4.3 trillion Yen ($32 billion) on the Vision Fund investment unit last week.
