What is common to Rediff.com, India Infoline, 123 greetings, Subex, Makemytrip and Bharti Telesoft? Their growth, at some stage or the other, has been funded by a global IT major.
Venture capital arms of global IT corporate bigwigs might form a small part of the VC funding flowing into the country, but they are clearly leaving a mark on the Indian tech landscape. And many more are joining pioneers like Intel, Cisco and Microsoft. Euro 10 billion ERP major SAP is the latest to join the bandwagon with its SAP Ventures.
Investment and merchant banking circles in India are buzzing with news that many more will follow in the next two to three years. ?Having made India a laboratory of innovation, companies like SAP are now encouraging innovation by launching these funds,? explains Forrester Research vice-president, Navi Radjou.
At the same time, funding patterns could change too. Post 2008, IT majors like Google, SAP and Yahoo will fund those companies whose products and applications are in sync with their global strategic interest, predicts Siddhartha Padam, principal in the Chesapeake Group (invesment and merchant banking).
?Though tech majors funding Indian start-ups is not a new phenomenon, we expect funding will no more cut across technologies and applications; we will see focused investments dedicated to applications specific funding in the next few years,? he adds.
Intel Capital?s portfolio of funding is a case in point. From Rediff.com to India Infoline and 123greetings.com, its venture arm has funded a wide spectrum of tech start-ups.
?Earlier, the broad strategy was to develop internet and its related applications. Now corporate venture capitals like SAP will be more interested in associating with enterprise applications,? Padam says.
Tech venture funds like Intel Capital, Acer Technology Ventures and Cisco Ventures are obviously looking to tap into the vast talent pool of India that saw the rise of outsourcing to India. Arvind Kajaria, head of Intrasoft Technologies, a company funded by Intel Capital in December 2007, feels that the availability of large number of skilled people is one of the reasons of attraction of the corporate ventures to the Indian market.
123greetings targets the US market and Kajaria says that Intel Capital Association has helped him with references, associations and technology.
It all started way back in 1998 with Intel Capital?s decision to invest in India?s technology start-ups. The aim was ?to stimulate technology innovation and grow the IT industry in India?. In 2002, Acer Technology Ventures India said that it would start looking at the Indian market and according to its India head Samir Kumar, the fund was looking at making a total of 8-10 investments between $1-2 million within the next two years. Next came the $250 million venture capital fund from Intelin 2005.
In the same year, communication equipment major Cisco decided to have a corpus fund of $100 million in venture funding as part of its $1.1 billion investment plan for India.
Cisco has already invested $80 million with around $20 million in the investment pipeline. And now SAP Ventures is expected to fund country?s start-up tech ventures after its long presence in the US and European market since 1997. In the next one year, the company would invest in six Indian companies, says Jai Das, a partner in SAP Ventures. Though SAP has declined to reveal the corpus of the fund set aside for the Indian market, it is expected to make a total investment of around $30 million in six Indian ventures, going by the history of an average investment of $4-5 million in each venture by SAP in the US and European markets.
And these funding have borne fruit too. It has helped create companies who have considerably brightened up the Indian tech sky in the last few years. Companies from NIIT Ltd, Rediff.com, Subex,
Bharti Telesoft to Sasken Communication, Sify and MakeMyTrip.com got the funding support from the tech venture funds like Intel Capital and Cisco Ventures.
Rama Sreeramaneni who heads the India operations of Hellosoft, a company funded by three corporate venture funds?Acer Technology Ventures in the first round and Mitsui Venture and Intel Capital in the second round?looks at the investment by companies like Intel as a kind of endorsement. To them, association with Intel means the world?s largest processor company arranging meetings with the global clients, getting help in research and development and meeting best of the technologists in tech conferences.
?When there is an investment from a IT major like Intel, it means that as a product company, we are different from others. It is more than money?the association with a brand like Intel provides us with an opportunity to take our products to the global customers,? says Sreeramaneni.
Hellosoft creates both software and hardware IP for the communications sector and its customers include global names like BenQ, Cisco, Broadcom, Panasonic and Texas Instruments.
The typical nature of funding by these ventures in most of the cases is below $20 million and is not too big to talk about. The funding is done in the second and third round and the exit route could be an initial public offering or an acquisition by a third company.
Says Joydeep Bose who heads Cisco Ventures, ?Typically, we would look to invest in companies that have an existing intellectual property and service offerings in the market, or revenues in the range of $5-15 million.?
Their investments in smaller companies are a means to validate their business model and provide them leadership bandwidth, says Bose. Till now, the corporate venture capital in the tech segment was mainly devoted to IT services, BPO and products and application space. This seems to be changing as venture funds are now eyeing the scalable local market that can absorb innovation. ?Cisco?s venture capital commitment to India is a reflection of the maturity of India as a technology marketplace,? adds Bose.
Siddhartha Padam of Chespaeake Group feels that the corporate ventures will now be more interested in product space rather than in pure play IT services.
Analysts believe that Google, Yahoo and SAP will play an important role in this direction. Though the corporate venture funds always want to have a decent return on investment, it is not always the only factor driving the decision to invest.
?Unlike the private venture capital, corporate venture funds also look at their business strategy and how funding will help their future business vision in their product and application space,? says Padam. For instance, Cisco uses investment to learn about new markets and add more value to the product and services roadmap. The networking equipment major sees immense opportunity in creating technology that will provide content across time and device.
?This is a challenge for content owners and for service providers to serve the right content at the right time in the right format,? says Joydeep Bose. In India, Cisco is looking at ways to help content owners and service providers to offer contents.
If Cisco is investing in companies working on content transmission and creating right format, Microsoft is learnt to have decided to create an incubation centre in Pune for start-ups interested in building products.
Microsoft?s initiative will create an ecosystem of entrepreneurship in the tech space. In the incubation centre, Microsoft technologists will help the innovative start-ups during the product development stage and at some point, some of the products may become Microsoft?s own product or a licensed application used in a Microsoft product.
