Has the Time Come for Corporates to Play the Role of VCs in India?

The startup ecosystem has bagged $3.5B in 2014. (Source)

As per Q3 review, around 230 Indian Tech Companies cumulatively raised over $3.84B. (Source)

Author: Sanjay Bansal, Founder, Aurum Equity Partners LLP

The startup ecosystem in India has never been more vibrant. This is evident from the fact that 380 Indian startups bagged a whopping $3.5 billion from investors between January to June alone this year. Deeper mobile penetration is further fueling the trend by helping new-age tech entrepreneurs achieve traction at break-neck speed.

As more and more investors jump into the fray to benefit from the startup boom in the country, large corporates too seem to have opened up to the idea of investing in them (and even acquiring them) not just to multiply their wealth, but also to benefit from the deep-rooted ‘innovation culture’ and fresh energy that these startups have to offer. The edge it can give them in the highly dynamic market in the long run is incomparable.

In today’s competitive age when consumers are always on the lookout for something new and exciting, it is necessary for companies to keep innovating so they can differentiate themselves from competition. But this is easier said than done. Vision for innovation, big budgets for R&D, expertise and above all, a quick turnaround time is usually difficult to attain in any large corporate setup. This is one of the main reasons why corporates have now begun to engage with startups that align with their business and are actively investing in them to reap long-term gains.

Investing in startups, acquiring them or collaborating with new ventures has been a trend in developed economies like US where large corporates have been playing the role of VCs. Companies such as Cisco, Qualcomm, Intel, Facebook etc. are known corporate giants that have attained high business growth by way of investing in or acquiring disruptive startups. They have managed to remain on top of their game by leveraging new technology, innovation and nimbleness; qualities that startups have now come to be associated with. Apart from US, this trend is visible in Germany as well, where companies like Bayer, Merck, Deutsche Telkom, Evonik and Metro have invested in startups to get digital expertise.

Of late this trend is catching up fast in India too and the front-runners in this space are Indian IT companies that have not only invested in startups, but also created special funds for them. Bigger and better exits, unexpectedly high valuations and a highly conducive ecosystem have added to their fervour. There couldn’t really have been a better time for corporates to take on the role of VCs and reap benefits galore.

Many large corporates have already taken the lead on this front. Infosys has created a $500 million innovation fund to invest in startups in the automation and artificial intelligence space. It recently acquired automation startup Panaya for $200 million. Wipro has also set aside a corpus of $100 million to invest in startups with focus on niche technologies such as data, open source and industrial internet etc. It also acquired significant minority stake in Opera Solutions LLC, a New Jersey-based big data company. TCS is also in the race and has been eyeing potential startups from across the world for investments. It also plans to incubate ideas pitched by its own employees.

Other corporate houses have also joined the bandwagon. Mahindra Group acquired the baby product company, BabyOye to integrate with its own brand – Mom & Me. Companies like MakeMyTrip too have dedicated $15 million fund for travel sector startups. Snapdeal has recently acquired five startups as well – Grabbon.com, eSportsbuy, Shopo.in, Doozton and Wishpicker. Flipkart is also on a buying spree and has acquired advertising technology firm AdIQuity Technologies Pvt. Ltd and mobile marketing firm Appiterate.  

While the initial plan is usually to collaborate with these startups and outsource innovation to maintain a competitive edge, once these large corporates are confident of the value the startup has to offer, they end up investing in them or even acquiring them at a later stage. It is an ideal scenario, because while the larger company can continue to focus on the core business, the startup takes care of the innovation. Considering startups thrive on their innovative ideas, corporates should not shy away from deriving synergies from them.

Apart from acquisitions and special funds, corporates are collaborating with startups on other fronts too. Companies like IBM and DBS Bank are sponsoring many new startup sites, organizing events such as hackathons etc. to identify disruptive startups and sending them to Silicon Valley so they can learn the ropes directly from leading startups there and get an opportunity to interact and collaborate with global giants. The exposure can be a game changer for startups and gives them a platform to think and go global.

With leading companies worldwide zeroing in on innovative startups to propel their growth, Indian corporates are in no mood to be left behind, and the timing seems to be perfect now.

Disclaimer: This is a guest post. The statements, opinions and data contained in these publications are solely those of the individual authors and contributors and not of iamWire and the editor(s).

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