The idea that technology and startups with newer business models will not disrupt traditional businesses has been thrown out the window.
The participation of large Indian corporates in providing financial backing to startups is growing, and while only firms such as Infosys and Wipro have set up dedicated startup funds, others are tracking disruptive technologies in their own sectors with clearance from their boards to sink money into startups if needed.
Majority of Indian companies track startups today, right from FinTech to retail.
The idea that technology and startups with newer business models will not disrupt traditional businesses has been thrown out the window.
Moreover, as these companies find it harder to attract the best technology talent, they’re being forced to nurture and back startups.
“Corporate activity in the startup space is growing and we are seeing more of them become aware. Whether it is older corporates or large corporates, they’ve now understood that they have to keep a watch in their own sectors for startups that are disruptive,” said Neha Singh, co-founder at research firm Tracxn.
While the setting up of dedicated startup funds by corporates is not common, several large traditional companies are looking at other ways to contribute to the startup wave and reap benefits.
Partnerships, accelerators and incubators are becoming more common in corporate India.
Taking a cue from large global companies such as Microsoft, Walmart and others, Indian corporates are helping foster innovation in the hope to get their hands on disruptive technologies.
Reliance has tied up with Microsoft Accelerator to start GenNext Hub, an accelerator for startups with the lure of getting to work with Reliance Group and even raise capital.
Other large corporate houses such as the Tata Group invests in startups through its financial services arm Tata Capital that runs a sector agnostic venture capital fund.
The money going into this fund is raised from external sources unlike in the case of Infosys and Wipro, who have set aside $500 million and $100 million respectively.
Tech Mahindra and Mindtree have started startup garages within their existing organisation structure that allows employees to work on disruptive technologies that might not have an immediate business impact, with some ideas even being backed by capital.
L&T Infotech has sought permission from its board to start investing in startups.
According to Singh, there are four broad ways Indian companies are looking at the startup sector today: Track startups in their space and forge partnerships; setup accelerators and incubators to nurture startups, funding and acquiring startups in order to become future ready and setup a dedicated fund to actively make bets on new-age companies.
The final method, which is the most advanced and intensive, also has the fewest number of corporates looking taking it up.
However, there is certainly value that is being brought by corporates starting accelerators and incubators, and as their exposure in the space matures more companies are expected to have dedicated funds for startups.
Tracxn, which tracks the startup industry and provides funding insights to corporates says it’s currently working with the likes of Reliance Industries Limited, Aditya Birla Group, Times Internet and Flipkart, advising them on various fronts.
So far, IT giants such as Infosys and Wipro have been the most proactive in creating funds for startups, largely due to the fast changing technology market.
The products and services offered by such companies are becoming irrelevant at a faster pace and to keep up with latest advances they’re being forced to tap startups.
Then there’s the aspect of a talent crisis within Indian IT companies for which is why they’re looking to nurture companies and get access to the latest technologies, according to Haresh Chawla, partner at India Value Fund.
“The smartest technology talent now prefers to join startups and the only way to keep on the cutting edge of both technology and the explosive wealth creation taking place is to invest or incubate these businesses (startups),” says Chawla.
“The success rate of corporate accelerator programs is entirely dependent on how they are run and if they can strike the right balance between control and independence to allow great talent and ideas to flourish as compared to pure play VC firms.”
Large Indian conglomerates stay away
While the interest of large Indian corporations in backing startups is definitely growing, some believe it’s better these companies stay out.
With no expertise and a mis-conception of being able to successfully spin off investments into new business unit, the participation of large corporates could hurt the startup sector.
“Indian companies have this self confidence that they can do everything. You’ll see that Tata goes out and makes a multi-billion dollar deal, but also ensures that it invests $100,000 in a startup. This is what I don’t get and I think that India has to mature,” says Harminder Sahni, managing director at Wazir Advisors.
Sahni adds that globally, large companies such as General Motors and Walmart do invest in startups, but only if they find a certain technology relevant to their own business.
In India however, investments are being fueled with the intent of breaking into new market segments, with the entire focus today being on getting access to the online sales channel.
Aditya Birla, a textiles-to-telecom conglomerate, launched its own online marketplace abof.com in order to compete with the likes of startups such as Myntra, rather than partnering with them.
The sense behind the move is that Aditya Birla too wants to ride the e-commerce wave, but in doing so the company is moving far away from its core.
While the interest of large Indian corporates in startups will grow, they should look at investing in technology that is relevant to them says Sahni.
Large companies should stop looking at startup investments as hedging their bets and treat them more as value enhancers.
TRIGGERING ENTREPRENEURSHIP
- GenNext Hub - RIL has partnered with Microsoft Ventures to launch a start-up accelerator
- Tata Capital Innovation Fund - a sector agnostic venture capital fund run by the Tata Group’s financial services arm Tata Capital
- Infosys Innovation Fund - IT firm Infosys has set aside $500 million to invest in technology start-ups
- Wipro Ventures - the strategic investment arm of Indian IT giant Wipro which has a corpus of $100 mn
- Startup Garage - Tech Mahindra and Mindtree are looking to encourage own employees
