Next47 needs to get more B2B investors in India: CEO Lak Ananth
Mumbai: In 2016, global engineering giant Siemens AG set up a new venture capital (VC) arm— next47—with the aim to foster disruptive ideas and accelerate the development of new technologies. Siemens has committed €1 billion (around Rs7,530 crore) over the next five years for this purpose.
In an interview, chief executive officer Lak Ananth talks about the focus areas of next47, how it is not just another corporate VC arm and why business-to-business, or B2B, start-ups are attracting more capital. Edited excerpts:
How is next47 different from other corporate VC arms as well as purebred VC firms?
We have been doing corporate venturing/partnering with start-ups and doing it for over 20 years. I think there has been a lot of learning on how to think about innovation differently inside a large company and how to bring the best ideas outside the large company and embrace it.
At next47 we have brought together not just the investment capability, which we call Capital, but also two other legs—Catalyst and Create—to complete the innovation picture.
“Catalyst” is the ability to take an innovation that we found, that we think is the best-in-class in the world, and bring that into the Siemens ecosystem. This capability can help our portfolio company to access Siemens domain knowledge and to access top customers. Siemens is active in 200 countries around the world and there’s no better partner for a start-up to work with. Most corporate venturing arms forget this part.
“Create” is to take ideas from within Siemens and our ecosystem. This is an important part of innovation because even if you have a really good idea, for that idea to scale within a big company is really hard because people are only interested in anything that starts with a billion.
So, next47 is actually about helping Siemens think about innovation holistically.
What are the sectors that next47 plans to focus on and how are they aligned with the legacy businesses of Siemens?
Siemens is active in four customer segments: energy, industry, infrastructure and healthcare.
In energy, we’re looking at electrification of cars, distributed generation of electricity, alternative forms of electricity generation and storage. In industry, we are looking at how industry is getting digitized, automation, decentralized manufacturing—how technologies such as robotics, IoT and cloud play into it.
In terms of infrastructure and transportation, we are looking at ride-sharing and mobility. How policing and logistics in urban areas could change with drones.
Your focus is on B2B start-ups. In India, we have seen most of the investing action in consumer facing start-ups. What is your view on the Indian B2B start-up ecosystem?
Many of the billion-dollar companies here have been more consumer focused, no question about that. And, if you look at the funding over the last three years, a lion’s share of that has gone to the B2C companies.
In all the four areas of our focus we are seeing core tech start-ups, entrepreneurs of that capability. The vectors that we will probably see improve here over time I think will be, what I call, going from technology thinking to product and customer thinking. That’s a learning curve I believe the start-ups here will go through.
Ten years ago there was a hope that something like this would happen. Finally now you have Freshdesk, Zoho, these companies are now becoming over $100 million companies, which is a good sign.
The tech is here, the customers here need to come along to provide that initial ramp so that companies then can go global and probably the investors here, we need to get more B2B investors here. So all these things will happen over time, but it is a good time to be looking at this market.
So the investors, too, are to be blamed for focusing too much on consumer start-ups?
It’s a global problem. Now you have a lot of funds being raised globally that are calling themselves core tech or frontier tech because the existing investors have all been looking at consumer bets over the last 10 years. We have had a good ride in consumer, driven primarily by the media spending becoming digital. Now you are looking at the rest of the world—anything that is built or moves—all of that is going to become digital, so we need people who can do core tech.
So investor focus on consumer is not an India problem, it is a global problem because everybody has been looking at consumer. A few successes here will really turn the tide in favour of B2B.
Out of the €1 billion commitment that Siemens has made to next47, how significant a part of that could India become over the next five years?
It is just a statement of intent. We have the full support of the Siemens board to invest at the pace the opportunity shows up at.
We have the flexibility to say, “this is really happening in India”, and to deploy or tilt our portfolio towards the Indian market and vice versa. We have no hard allocations.
If you look at the capital deployed globally in venture, it’s 60% in the US, China is another 15-20%, Europe is another 10% and India is close to 5%. I think this ecosystem will definitely grow. Our capital allocation, obviously, will be based on how the rest of the ecosystem supports this.