Venture capital (VC) arms of companies such as Intel, Cisco, Reliance ADAG, Google and Yahoo are increasing their investments in early stage technology and consumer service start-ups in India.
In the past 12 months, Intel Capital, the venture arm of the world’s largest computer chip manufacturer, has invested in 10 start-up companies; the aim is to make one new investment every six weeks. In contrast, in the eight years from 1998, when Intel Capital first started investing in India, through December 2005, when it announced the Rs1,125 crore Intel Capital India Technology Fund, the firm would typically invest in an average of three-four start-ups in a year.
Cisco Systems Inc, which has a global corporate venture fund, is set to invest Rs450 crore in Indian start-ups over the next two years. This is on the heels of its investments in television content company Nimbus Communications in January 2007, mobile content company IndiaGames and mobile infrastructure provider Bharti Telesoft.
“We have no ceiling on investments and could easily double our investments if we find the right opportunities,” said Sameet Mehta, director of India investments and acquisitions, Cisco Systems.
In 2006, corporate venture capital accounted for less than 15% of the Rs2,250 crore invested in early stage start-up companies, according to Venture Intelligence, a tracker of venture capital and private equity in India.
Industry watchers estimate that this number is set to rise as more corporate VC’s such as Nokia Growth Partners, Siemens VC and SAP Ventures start picking up a stake in start-up companies that are aligned with their corporate interests.
Corporate VC’s are also looking for co-investment deals with other VC’s, as in the case of Yahoo Inc., which partnered with early stage VC firm Canaan Partners to put in Rs8.5 crore in online marriage portal Bharat Matrimony.com. “Corporate VCs are not really looking to compete with financial investors; by co-investing, they get a larger share of the overall VC investment pie,” says Arun Natarajan, CEO, Venture Intelligence.
Venture capital investment in Indian start-up companies has been steadily increasing from a level of Rs166 crore of VC investments in the first quarter of 2005 to Rs562 crore in 2006. In comparison, the first quarter of 2007 saw 20 deals worth Rs585 crore being finalized. It is this rising tide of opportunity that corporate venture capitalists are seeking to cash in on.
As strategic investors, they are using multiple strategies to get a share of this growing entrepreneurial pie. Firms such as Intel Capital, Cisco Systems and Nokia Growth Partners are direct investors while Google has chosen the “fund of funds” approach by investing approximately Rs9 crore each in two independent venture capital firms, Seedfund and Erasmic Ventures, both of whom focus on investments in very early stage start-ups companies.
Reliance Capital is also an investor in Seedfund, a Rs60 crore fund launched in December 2006.
Yet others, such as software giant Microsoft Corp. and IBM Corp., do not make any financial investments. Instead, they focus on partnering with start-up companies that are building new products and services that can be leveraged by corporate customers.
IBM Venture Capital group, which works with over 120 global VC firms, is running a day-long ‘Innovation Forum’ in Bangalore that aims to link these top-tier investors with start-ups that IBM is working with in India, such as InstaColl, a software application company with angel funding from Sabeer Bhatia, co-founder of Hotmail. Insta-Coll, which has built applications that bundle its software collaboration tool with IBM hardware, now gets to pitch its product to corporate users, an opportunity that would otherwise be hard to come by for a small start-up.
In an April 2007 podcast, Drew Clark, director, strategy at IBM Venture Capital group, said the focus in India would be to partner with start-ups in the consumer Internet space such as retail and travel services as well as mobile content companies, all of whom would need to have products or solutions that IBM customers are interested in.
Entrepreneurs typically turn to corporate venture capitalists for exactly this sort of opening to global customers as well as for a headstart in using new technology as in the case of Chennai-based digital cinema start-up Real Images that raised second round funding from Intel Capital, in 2006 and is looking for corporate venture capital as it closes a third round of investment.
“A corporate VC such as Intel Capital has helped us pitch our products to top Hollywood studios and gives us a preview of technology that we can build into products ahead of competitors”, says Senthil Kumar, founder Real Images.