Start-ups attract investments from top companies, wealthy corporates

When Finance Minister Arun Jaitley, in his maiden budget in July, announced a Rs 10,000 crore fund for risk capital investment in start-ups, it elicited cheers and applause from the start-up community. Jaitley also allocated Rs 100 crore in the budget to fund technology ventures, besides announcing setting up a nationwide incubation infrastructure for start-ups, and a committee to monitor the flow of funds to small businesses. These measures are helping start-ups attract the attention of some of India's top corporate houses and wealthy individuals.

Ratan Tata, Chairman Emeritus at Tata Sons, created a buzz recently when he invested in online marketplace Snapdeal and online jewellery retailer Bluestone in the space of a month. Tata joins the ranks of tech titans Azim Premji and NR Narayana Murthy, who also have invested their personal wealth in start-ups. While the billionaire Wipro Chairman Premji supports budding entrepreneurs through his family office PremjiInvest, Infosys Co-founder Murthy has set up Catamaran Ventures to invest in start-ups.

Infosys and Wipro, two of India's largest software services exporters, are now going one step ahead. Both companies are setting aside funds to invest in high-risk, early-stage tech start-ups that can give them a competitive edge. Wipro is reported to have created a $100 million fund headed by Premji's son Rishad Premji to invest in technology start-ups. Infosys is also scouting for early-stage technology ventures. "We have met with venture capital firms to explore potential partnerships with companies in their portfolio and are encouraged with the interest that the innovation ecosystem has shown," an Infosys spokesperson told Business Today. "We are looking at a broad category of young companies that are innovating in software operations as well us industry vertical solutions relevant to our clients."

In a way, Indian companies are following multinational giants such as Google, Facebook, Yahoo! and IBM which have been investing in or acquiring start-ups, including in India, for quite some time. A number of such deals are meant primarily to acquire technology talent. Facebook, for instance, acquired Little Eye Labs, a Bangalore-based start-up that makes mobile app analysis tools, in January this year. More recently, Internet giant Yahoo! purchased the Bangalore-based Bookpad in September. Bookpad, founded by IIT graduates, is barely a year old and provides technology to customers to help them preview, edit and manage documents on the cloud.

A key reason why top software companies are rushing to engage with start-ups is that, in many countries and sectors, start-ups are doing the most innovative work and coming out with the best ideas. This is particularly true in the case of technologies that are attracting a predominant amount of IT spending, such as mobile application development and those relating to social media, business analytics and cloud computing. "A complete lack of investment into the future is forcing top IT companies to look at start-ups and make acquisitions. Globally, that has been the norm," says Sharad Sharma, Co-founder of industry body iSPIRT. "For most corporate VCs (venture capital firms), the strategy has usually been to invest in start-ups that keep them on top of new technologies and hence competition."

But it's not just software companies that are showing interest in start-ups. Energy giant Reliance Industries (RIL) and travel portal MakeMyTrip are among the other companies that are encouraging start-ups. MakeMyTrip has announced a $15 million fund to invest in start-ups that come up with innovative technologies for the travel sector. Gaming company Nazara Technologies announced a Rs 5 crore seed-stage fund late last year to invest in young game development companies. And Rehan Yar Khan, a seasoned angel investor who has previously backed companies such as Druva, OlaCabs, Unbxd and PrettySecrets, recently announced a Rs 300 crore fund called Orios Venture Partners to invest in Internet and software companies.

RIL, the country's biggest private sector company by revenue, is looking to boost its technological capabilities by investing in start-ups. GenNext Ventures, RIL's venture capital arm, recently signed a three-year pact with Microsoft Ventures in India to set up innovation hubs that would support start-ups in areas such as education, mobility, Big Data, health-care and digital media. GenNext Ventures will make strategic investments in selected start-ups graduating from these hubs. The first hub, at Navi Mumbai, will start operations from October 6. "Our focus is on helping start-ups accelerate and scale rapidly by leveraging cutting-edge technology that delivers unique solutions, that are way ahead of our competition," said R.A. Mashelkar, Chairman, GenNext Ventures, and an RIL board member. "We believe this will also lead to the creation of thousands of jobs in India."

This is the second such tie-up by Microsoft Ventures in recent months. The start-up accelerator earlier joined hands with the Deshpande Foundation, founded by Indian-American entrepreneur and venture capitalist Gururaj 'Desh' Deshpande, to launch Sandbox Startups, an incubation initiative to support start-ups in Tier-II and Tier-III towns. Sandbox Startups has set up a 20,000 square feet space in Hubli, Karnataka, where both for-profit and not-for-profit technology start-ups will be incubated.

The buoyant scenario in India is also attracting start-up incubators from Canada to Japan. Ryerson Futures, a Toronto-based technology start-up incubator, has tied up with the Bombay Stock Exchange Institute in Mumbai to launch Zone Start-ups with an aim to support entrepreneurs in areas such as health-care, data analytics, mobile payments and e-commerce. Similarly, Japan's Netprice.com is reported to be eyeing investment opportunities among technology start-ups in India. Netprice.com focuses on consumer Internet companies and has invested in Mumbai-based payment solutions company Citrus Pay and Gurgaon-based online retailer Shopclues.

Start-ups in India are upbeat about the growing interest in the sector. "It is definitely going to make a big difference if more companies are willing to take risks with start-ups," says Manjunath Talwar, CEO of myNoticePeriod, a start-up that runs out of Startup Warehouse, an incubation and co-working facility set up by IT industry body Nasscom in Bangalore. Talwar says a number of large companies, including Citrix, Google, Walmart, Cisco, Wipro, Intel and Bosch visited the premises of Startup Warehouse in the past few months.

While interest in start-ups is definitely on the rise, it is too early to say whether this would translate into a substantially higher fund flow into the sector. "Currently, it's a pure exploratory measure on the part of large companies trying to engage with start-ups," says Ashok Madaravally, Senior Manager at Nasscom's 10,000 Start-ups Programme. "They are looking at a few areas that can pay off in the short or medium term and eventually acquire talent or intellectual property, or partner with a start-up as a technology vendor," he adds.

Sharma of iSPIRT agrees. "Not all capital that companies are setting aside will go in acquiring Indian start-ups. This is because most Indian tech start-ups are focused on the mid-market in the US, where top-tier IT companies have much larger clients to cater to," he says.