Sitting pretty on liquid assets worth $5.5 billion, Infosys, which has so far been conservative with investments, on Friday announced a five-fold increase in its start-ups fund from the present $100 million to $500 million. The second-largest IT services company in the country had announced a $100 million fund in April 2013, but the money had been gathering moss until CEO Vishal Sikka took over in August last year. The initiative has Deepak Padaki, who heads corporate planning and strategy, at the helm.
Sikka on Friday said the funds will be deployed for innovations around artificial intelligence, automation, Internet of Things, collaboration and design, as well as investments in start-ups. “We are going to see more traction in the acquisition space. We are working on that and looking for companies in areas we want to be in. We are not interested in buying yesterday’s technologies but augmenting our capabilities in innovation, automation, artificial intelligence, better productivity, collaboration design and things like this,” Sikka said, adding that the company is working on 10 new projects around artificial intelligence.
The Indian start-ups can also take heart from the announcement as Sikka said a part of the funds is likely to be invested in the homegrown companies. “I want to dedicate a part of the funds for innovation coming from Indian start-ups. There is a lot going on here and I was reading recently that start-ups in India are struggling to get scale. We can bring them to scale, invest in them and help them to expand their abilities,” he added.
Infosys has partnered with video technology company Ooyala and collaboration and communication tools provider Clique Intelligence, both US-based ventures. It is yet to pump money into any Indian start-up or make any aggressive acquisition bids as such, despite having cash and cash equivalents to the tune of $5.5 billion. Its last big acquisition was Zurich-based consulting firm Lodestone for around $350 million in 2012.
“The services companies are used to generating revenues per head. In that case, it’s very difficult to take a bet on something that doesn’t generate revenue tomorrow. Though the big IT services companies don’t have a track record of investments in India, they will start doing it in product companies as they come to terms with the new world,” Sanat Rao, a partner at software product lobby iSPIRT Foundation, told FE on Friday.
India, home to 3,100 start-ups, ranks third, after the US with 41,500 and UK with 4,000 start-ups. The Indian start-ups have reportedly witnessed investments worth $2.3 billion since 2010 from 300 venture capital and private equity funds, besides 225 angel investments. In the last 14 months, 805 technology product start-ups were set up in the country and the number is projected to shoot up to 2,000 by 2020, according to Nasscom’s India Start-up report 2014.
Incidentally, rival Wipro had also instituted a dedicated $100-million venture capital fund recently, to be supervised by chairman Azim Premji’s son Rishad, who is also the chief strategy officer at Wipro. Global technology majors like SAP, Microsoft, Cisco, Qualcomm, IBM and Intel have venture capital arms.
“This trend of big IT service firms acquiring start-ups is going to increase. The large companies are putting in place new structures and processes. The companies are realising that it cannot be innovating in all new segments of industry like cloud, mobility and internet of things space. The new DNA required in this segment is easier to acquire than build inside. The new technologies are a mash up of software, hardware and products and companies need to do this holistically,” Ravi Gururaj, chairman, Nasscom product council, told FE on Friday reacting to the move by Infosys.
Strategy working, significant rise in revenue will take time
The performance of Infosys for the third quarter was a positive surprise for the market with operating profit margins and volumes rising. Infosys CEO Vishal Sikka, who attributed this “awesome” performance to the team, spoke about the company’s roadmap during a media interaction. Edited excerpts:
How will the innovation fund, now raised to $500 million, be used by Infosys?
This innovation fund will invest in companies around the world but with focus on India. We believe that the next generation of business innovation is going to come from start-up companies. We are looking forward to help startups achieve scale as particularly in India they struggle to achieve this. This is the area where we can help. This fund will be separate from M&A activity. Over the next three to four weeks, we are looking at how we will operate this, whether as a separate venture fund within the company or directly as investments.
How is the pricing environment?
We have seen a downward pricing pressure. In the longer term, one will continue to see downward pressure on prices both in terms of overall shrinking budgets and the pressure on the way business are delivered. This is because, for lack of a better phrase, we are delivering yesterday’s services in yesterday’s ways. The time for it has come to an end though it will take a long time to wind down. However, the long term picture is very clear as the industry is looking for more productivity, innovation and automation.
Can we say Infosys is back to the status of being the bellwether?
It is too early to say that. We have seen early signs of the strategy taking effect. More than 56 projects are working on Infosys’ information platform which is connected to big data and analytics. We are doing workshops for clients on design thinking. There are signs already but in terms of terms of significant revenue, it will take time.
Is there an emergence of a new business model in the industry with the rise of automation, artificial intelligence?
One will see new business models emerging. This is too small to quantify as a meaningful part of the business. There are a handful of projects which are being done through different ways of pricing while creating value. We expect more and more projects going away from the traditional time and material model and moving towards the new outcome based model.
Are you satisfied with attrition levels?
The number of people leaving the company month-on-month or quarter-on-quarter is coming down fast. There is a marked reduction in attrition. We are happy with that. But we are not happy with 8,000 people leaving this quarter. We want to bring the attrition level down to 12-14% in the next couple of quarters.