It is not just entrepreneurs who are bitten by the start-up bug; large corporations too, are not immune to it. Over the past few months, two of the world’s largest technology companies, Microsoft Corp. and Sun Microsystems Inc., have announced a slew of initiatives for young technology start-ups in India, ranging from free consulting services to incubation facilities and access to product development labs, to steep discounts on new technology.
By creating a support system that young start-ups can plug into, these technology majors are aiming to become significant players in India’s rapidly expanding start-up ecosystem. In 2007, private equity and venture capital inflows into the country are expected to touch $13.5 billion (approx. Rs53,000 crore), up from $7.46 billion in 2006. By the end of December 2010, private equity and venture capital funds would have invested up to $20 billion in India, according to Evalueserve, a research and analytics firm. Typically, technology start-ups receive over a fifth of these investments—with sectors such as financial services, manufacturing, real estate, health care and emerging businesses such as microfinance absorbing the rest.
Start-ups, however, need more than just money to turn into successful businesses. Strong technical support, marketing skills and the ability to win high-value customers are some of the gaps that entrepreneurs typically seek help to fill. Technology majors such as Microsoft, Sun, Hewlett Packard Co. (H-P) and International Business Machines Corp. (IBM), in turn, offer structured support networks that focus on bridging these gaps.
These initiatives differ from the direct financial investment method adopted by some of their peers such as Intel Corp. or Cisco Systems, Inc., where the corporate venture capital arms of these companies make direct financial investments in start-ups from strategically chosen industry segments. “We do not preclude direct financial investments, but we would be very thoughtful about where we invest, so the focus now is on building technical and business partnerships with start-ups,” says Ravi Venkatesan, chairman, Microsoft India.
Microsoft’s Start-up Accelerator Programme, launched in the first week of October, will create a technology road map for software start-ups, provide them with licensed software and help in business and marketing development, before linking them up with venture capitalists.
In Pune, the Microsoft Innovation Centre—to be set up in partnership with the Symbiosis International University and the College of Engineering—will house quality testing labs that entrepreneurs can use to test prototypes in simulated business environments.
Start-ups can also lean on Microsoft’s academic partners for troubleshooting help. “Every time a start-up with the potential to build a global business embraces the Microsoft platform, we get to be part of that success story,” says Venkatesan.
The start-up essentials programme (SSEP) from Sun Microsystems has more than 700 start-ups on its roster since its launch in the US in November 2006, and is also aimed at Indian technology start-ups that are less than four years old and have a maximum of 150 employees. For such partner companies, Sun has a basket of offers ranging from hardware at discounted prices and free help with technical questions to Web hosting services and access to Sun engineers who can iron out technical flaws in product development that young start-ups struggle with.
“Large corporations can also be a potential customer of, or a supplier to, young start-ups, apart from providing mentorship,” says Kalyani Gandhi, chairperson of the N S Raghavan Centre for Entrepreneurial Learning at the Indian Institute of Management Bangalore, where more than seven young start-up companies are currently being incubated. Gandhi rates technological inputs as the primary advantages derived by start-ups focused on breakthrough innovation, every time they partner with large corporates.
Chennai-based start-up outfit Sybrant, a partner in Sun Microsystems’ SSEP, aims to build a strong, long-term strategic R&D relationship with Sun. The company, which provides product engineering services to clients in the US, has saved time on marketing and initial capital costs on technology purchases by partnering with Sun, according to V. Thiyagarajan, chief executive officer, Sybrant.
For start-ups looking to acquire customers in new domains, the networking skills and contacts a large corporate partner provides can be invaluable, says Gandhi. For instance, the two-year-old start-up company, InstaColl, co-founded by serial entrepreneur Sabeer Bhatia, has seen a huge increase in its customer base since it signed on to IBM’s PartnerWorld programme.
In the last six months, the Bangalore-based start-up has successfully sold its document-sharing and collaborative tool, InstaSecure, to big-ticket customers on Wall Street. “These are six-figure contracts we would have no chance of winning without the support of IBM,” says Sumanth Raghavendra, chief executive officer.
In turn, by bundling an InstaColl solution with IBM hardware, both partners have been able to pitch for customized corporate deals. “IBM has also sponsored our go-to-market activities all over India, from product launch events to road shows,” says Raghavendra. He is now looking to firm up more than 200 prospective deals with overseas customers that have come by since InstaColl began working with IBM in May.
“Giving start-ups in India access to our global ecosystem is a competitive advantage we offer to the start-ups we work with,” says Drew Clark, director, strategy, IBM Venture Capital Group. IBM also operates 38 Innovation Centers worldwide, which provide technical assistance throughout the application network development life cycle.
In rural Andhra Pradesh, more than 150 village primary agricultural cooperative societies (Pacs) have been linked together on a network, built entirely on the Microsoft platform by a Hyderabad-based start-up outfit, CoOptions Technologies Ltd. The software, which includes the credit history of individual farmers in the network, is used both as a marketing tool for locally grown produce as well as a financial management tool.
“The repayment rate of farmers on the Pacs network is close to 92%,” says Sudhakar Varanasi, chief executive officer, CoOptions, which now plans to take the system to more than 2,500 villages across the country.
The start-up receives price discounts of up to 60% on Microsoft products, gets a preview on new technology releases and, most importantly, has been able to win government contracts by virtue of being a Microsoft partner.
In choosing to partner with a particular technology major, start-ups typically evaluate a host of factors ranging from the flexibility of technology, and whether it is open source or proprietary, to the level of proactive support a partner provides.
Bangalore-based start-up Channel Mentor, which builds customized enterprise software for corporate travel and expense management, works on the Java, J2EE platform which made Sun Microsystems its first choice. “But we did evaluate the programmes of all four companies—Microsoft, Sun, H-P and IBM—before choosing Sun,” says Subir Pal, chief executive officer.
Counting costs: Start-ups have to safeguard their technology investments, says Sun Microsystems’ K.P. Unnikrishnan.
“Start-ups have to safeguard their technology investments. Not only should (the) total cost of ownership be low, the barrier to exit a particular technology should also be low,” says K.P. Unnikrishnan, director, marketing, Alliances & Teleweb Sales, Sun Microsystems India.
If a start-up has technology built on open standards, it is easy to use applications from multiple vendors. These factors can be crucial when start-ups develop customized solutions. “When you are deeply embedded on a single-technology platform, competing players will not work with you. So, for a start-up to align itself with a particular technology major is always a calculated risk,” says InstaColl’s Raghavendra, who has worked with Intel, Sun Microsystems and now partners with IBM.
Apart from technology support and customer contacts, large companies which do not make direct financial investments in start-ups can still provide them with the money advantage. An annual event when partner companies are introduced to a large panel of venture capitalists is common to start-up programmes run by all the technology majors.
At the Microsoft Innovation Summit at Bangalore in early October, venture capitalists networked with start-ups which had already been filtered by the partner evaluation programme used by Microsoft.
“In a sense, these are start-ups in areas of interest to Microsoft such as software, mobile and the Internet. And, once they have been validated by the Microsoft system, we consider them to be warm deals”, says Sandeep Singhal, managing director of Sequoia Capital, a venture capital firm that invests in early-stage companies.
Sun Microsystems, which launched SSEP in India in August, hopes to have at least 50 companies on board this year by filtering applicants from networks such as Indus Entrepreneurs, Barcamps and from among members of apex bodies such as the National Association of Software and Services Companies (Nasscom). “Regular forums that link our partners with venture capitalists will be a feature of SSEP,” says Unnikrishnan.
• InstaColl has seen a huge increase in its customer base since it signed on with IBM’s PartnerWorld programme. The Bangalore-based start-up has sold its document- sharing and collaborative tool, InstaSecure, to big-ticket customers on Wall Street.
• CoOptions Technologies Ltd has built a network on the Microsoft platform to link more than 150 village primary agricultural cooperative societies. The software, which includes the credit history of individual farmers in the network, is used both as a marketing tool for locally grown produce as well as a financial management tool.
• Channel Mentor, which builds customized enterprise software for corporate travel and expense management, works on the Java, J2EE platform and has tied up with Sun Microsystems’ start-up essentials programme.