Bengaluru: Infosys Ltd, which will turn 34 this July, is banking on its $500 million innovation fund to tap into the start-up ecosystem from Silicon Valley to Bengaluru. The motive: To remain relevant for the next 34 years.
For now, India’s second largest software services exporter has started building a team to identify, evaluate and invest in start-ups focused on new technologies.
Last month, Infosys appointed Jake Klein, a former senior vice-president at SAP, as its vice-president of corporate development. He is the 16th senior SAP executive officer (CEO) to join Infosys since Vishal Sikka was appointed its first non-founder chief executive in August. Klein will be based out of Israel and will help in “making investments, acquisitions, and also post-merger integrations”, according to one executive familiar with the development. The executive declined to be named.
Earlier this year, Infosys brought on board former VMware Inc. executive Pankaj Mitra, stationed out of San Francisco, to help make investments in start-ups. In the last two months, Infosys has hired three other executives—one based in Bengaluru and two in San Francisco—with the aim of building a global team of “10 executives” across the US, Europe, Africa and the Middle East, and India.
These three executives, along with Klein and Mitra, will report to Yusuf Bashir, another former SAP executive who was tasked by Sikka last month to oversee the Infosys Innovation Fund, the $250 million Innovate in India fund and the start-up incubator, under which the Bengaluru-based firm promises to scale up the business of technology start-ups.
“Today, we are seeing increasing adoption of cloud, of platforms, the bundling of infra-app and other things. So, the market has shifted. The services business will too shift over a period of time and it will be more about partnerships with start-ups as not every idea will come from within (Infosys),” U.B. Pravin Rao, chief operating officer, had said in an interview earlier this year.
Sikka’s push to have senior executives camped out of cities that are home to start-ups bears the imprint of SAP co-founder Hasso Plattner, who structured the venture capital arm, erstwhile SAP Ventures (now Sapphire Ventures), on similar lines, according to two executives who worked with Sikka at the German business software maker.
“Vishal was very much instrumental and played an important role for it helped in embracing the idea among the senior ranks when the start-up and corporate venture arms were working,” said John Appleby, who worked with Sikka at SAP and now heads SAP Hana at Bluefin Solutions, the London-based consultancy.
Infosys’s acquisition of automation firm Panaya earlier this year too had Plattner’s touch: HassoPlattner Ventures, corporate venture arm of Plattner, was one of the six investors in Panaya.
Sikka knows the importance of start-ups in reviving the fortunes of legacy software firms. While at SAP, the company’s core business of selling business applications came under pressure from rival Oracle: SAP’s share of the $60 billion business application software fell to 14.8% in 2010 from 15.5% in 2007, while Oracle’s rose to 10.7% from 10%. Sikka then put out a programme that allowed start-up companies to develop creative new solutions for SAP’s blockbuster data analytics platform HANA.
With Infosys’s traditional outsourcing business is going through troubled times, Sikka has outlined an audacious target of making his firm a $20 billion entity by 2020. To help achieve this, he has increased the size of the Infosys Innovation Fund by five times to $500 million and mandated his team to scout for start-ups focused on automation, artificial intelligence and the Internet of Things (IoT). Since the start of the year, Infosys has spent $17 million in picking minority stakes in two start-ups: It first invested $15 million to pick a stake in a spin-off of Dreamworks Animation and another $2 million investment in Air Viz Inc., which was spun off from Carnegie Mellon University and makes air quality sensors.
However, none of the executives in the Infosys Innovation Fund have any experience in the venture capital space. Bashir, in his earlier stint at SAP, was heading the global responsibility for product roll-out and adoption. Klein led a research and development team responsible for SAP River, a next-generation enterprise application development platform and was also overseeing the Israel HANA Co-innovation Lab. Mitra, while at VMware, was part of a team that helped the firm’s new product offerings.
Sikka and his team are also meeting venture capital firms, including Accel Partners and Andreessen Horowitz, sifting through a portfolio of start-ups.
Earlier in March, when legendary computer professor Alan Kay, who is also a close friend of Sikka, visited the Mountain View, California office of YCombinator, a venture firm that specializes in funding early stage start-ups, Paul Graham, co-founder of the seed capital firm, tweeted: “Wow. Alan Kay just walked into YC”. Details of Kay’s visit remain sketchy, though Sam Altman, president of YCombinator later said: “perhaps they (Infosys) are just investing in some of our companies.”
This is in stark contrast to the model adopted by cross-city rival Wipro Ltd, which started selling computers the same year Infosys was founded.
Wipro set up a corporate venture arm six months before Sikka raised the size of the Infosys fund. Last summer, Wipro kept aside $100 million to back start-ups and appointed Venu Pemmaraju, a senior investment manager at Intel Capital, and Wipro executive Biplab Adhya to head the corporate venture arm. Both Pemmaraju and Adhya report to Rishad Premji, head of strategy and son of Wipro chairman Azim Premji.
“The idea to have a joint CEO-kind of structure is that one executive knows that technology requirements of a firm and the other executive brings in the VC (venture capital) experience needed when making investments,” said a Wipro executive, who said the firm does not have any plans to expand the team.
Rishad Premji, too, has met with many venture capitalists and evaluated start-ups backed by VCs.
For now, Wipro has made a minority investment of $5 million in Drivestream, a US-based start-up that helps in integrating Oracle cloud applications systems, and also has a $30 million investment in New Jersey-based data analytics firm Opera Solutions. Wipro did make another investment of $5 million in machine-to-machine learning focused start-up Axeda, but sold its stake last year after the start-up was bought by a Nasdaq-listed firm.
“If you think about where the innovation centres are, you’d want to staff in London, Tel Aviv, Bangalore, San Francisco, Beijing, Tokyo, etc.,” said Ray Wang, founder of Constellation Research. “The challenge is finding the right pipeline. Both approaches work but to scale, these venture arms must be known for a certain thesis.”
“In Infosys’s case, they have publicly stated the need to use software to scale with AI (artificial intelligence) and automation. This helps in bringing the pipeline to the company. Wipro has been a bit more close to the vest and is more of a corporate venture arm approach. However, that could change at any moment,” Wang said.