Paytm may be one of the first companies in which SoftBank will impose its new terms that the startup make a written commitment to go public within a stipulated period. According to reports, yet to be confirmed, SoftBank has signed an agreement with One97 Communications, the parent company of Paytm, for further funding with the proviso that the company will go in for an IPO within the next 5 years. An IPO in the Indian context means 3 years of profits for the company and this is the indirect way SoftBank has found of forcing the startups it has invested in, to start making profits. SoftBank has stipulated that if Paytm fails to reach that milestone, it reserves the right to sell its stake, even to a rival.
Paytm is in the process of raising another $1 billion. The expectation is that a large part of this funding will again come from the existing investors, SoftBank Vison Fund and Ant Financial, the investment arm of the Alibaba Group of China. An amount of $150-200 million may be invested by T Rowe Price, a US-based asset manager. Ant Financial is the major stakeholder in Paytm with 38% while SoftBank owns 19%.
Paytm might have been one of the pioneers in the digital wallet space and it benefited a lot when the demonetisation took place at the end of 2016. Subsequently, however, other players like Google Pay and Phone Pe which is now owned by Walmart, have progressed much faster and are leading the stakes. Paytm has been pushed to the third place and has a lot of catching up to do.
As far as SoftBank is concerned, the Japanese investor is passing though a trough right now, following the failure of WeWork that led to a loss of $4.6 billion. Another startup Uber which went public saw its valuation much below the offer price. Among these setbacks, the company’s efforts to raise funds for its Soft Bank Vision Fund II of $100 billion have been stalled.
All these have resulted in the company taking a tough stance with all the companies that it has already invested in and is telling them in no uncertain terms that if they don’t find ways to make profits soon, they can forget any more funding from the Japanese investor.
As far as Paytm and One97 Communications are concerned, the road ahead is going to be very tough, what with the company posting a net loss of ₹3,959.6 crore in FY19 against ₹1,490 crore the previous year. There has not been any dramatic improvement in its standalone revenue either; it rose to ₹3,319 crore from ₹3,229 crore in FY18.