Large companies open purse for start-ups

Seek hedge against disruptive tech

Large Indian companies’ financial backing of start-ups is growing. Infosys and Wipro have set up dedicated start-up funds and other companies are tracking disruptive technologies in their own sectors, with clearance from their boards to invest in start-ups.

The majority of Indian companies now track start-ups. The idea that technology and newer business models will not disrupt traditional businesses has been discredited.

“Corporate activity in the start-up space is growing. Large companies have understood they have to keep a watch in their own sectors for startups that are disruptive,” says Neha Singh, co-founder at research firm Traxcn. While dedicated start-up funds are not common, partnerships, accelerators and incubators are mushrooming in corporate India.

Reliance has tied up with Microsoft Accelerator to start GenNext Hub, an accelerator for startups. Tata Capital runs a sector agnostic venture capital fund with money raised from external sources, unlike Infosys and Wipro, which have set aside $500 million and $100 million, respectively.

Tech Mahindra and Mindtree have started startup garages to allow employees to work on disruptive technologies. L&T Infotech has sought permission from its board to start investing in start-ups.

According to Singh, there are four broad ways Indian companies are engaging with startups: tracking and forging partnerships; setting up accelerators and incubators, funding and acquiring start-ups; and setting up dedicated funds to bet on newage companies.

The final method, which is the most advanced and intensive, has the fewest takers. Infosys and Wipro have been the most proactive in creating funds for start-ups because their products and services are becoming irrelevant faster.

A talent crisis within infotech companies is also forcing them to nurture 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 be on the cutting edge is to incubate startups,” says Chawla.

“Indian companies have this confidence that they can do everything,” says Harminder Sahni, managing director at Wazir Advisors, adding companies like General Motors and Walmart invest in startups only if they find a technology relevant to their business.

In India however, investments are being fueled with the intent of breaking into new market segments.

The Aditya Birla group, a textiles to telecom conglomerate, launched its own online marketplace abof.com to compete with Myntra. Large companies should stop looking at startup investments as hedging tools and treat them more as value enhancers, Sahni adds.