Mumbai: Early-stage technology investing is back in fashion in the country and it is not just conventional venture capital (VC) investors who are taking interest in India start-ups. Corporate ‘venturing’ (venture capital investments by non-financial companies), which has seen a revival in the US market over the past two years, is becoming common in the Indian technology space, too. Among the big names active in this area in India are IBM Corp., Intel Corp., Cisco Systems and, lately, Google Inc. Their investment strategies vary between direct deals and investments in local VC funds. At least 16 start-ups and four VC funds have received investments from corporate VCs in the past two years.
For start-ups looking to raise money, corporate VCs sometimes offer a much-needed alternative to traditional VC firms that may not always be plugged into their value proposition. Intel, for instance, which has done 10 of the 16 deals so far through its investment arm Intel Capital, makes strategic investments in firms working on products in its domain. The $250 million (Rs1,012.5 crore) Intel Capital India Technology Fund, raised in December 2005, is comparable to the most active VC funds in the current round of investment. Even its corpus is larger than the average $150 million early-stage VC funds active here. Intel Capital is investing in sectors such as semiconductor design, mobile applications and digital entertainment.
Globally, Intel, Cisco and Motorola are among the largest corporate VCs. In the current round of funding, these companies have increased their global thrust, investing heavily outside their home markets. (Intel Capital invested close to 60% of its $1.07 billion venture capital fund outside the US in 2006.) Siemens AG is the other player that invests directly. Cisco and Motorola follow a hybrid model—direct investments and indirect investments by backing venture capital firm Softbank Asia Infrastructure Fund.
Google has chosen the indirect route—it invests in local VC funds focused on start-ups. It is looking at products and applications in the Internet and mobile space. In the last seven months, it has invested in three early-stage funds—Hyderabad-based Ventureast TeNet, Bangalore-based Erasmic Ventures and Mumbai-based Seedfund.
IBM’s investment arm IBM Venture Capital Group also invests in start-ups but follows a completely different approach. It partners with early-stage VCs and start-ups that can complement its product and services offerings.
While conventional VCs only focus on financial returns, corporate VCs are more concerned with technology returns. “No company can build everything on its own, so we look at technology outside,” says Rajesh Vakil, associate, Communications Fund, Siemens Venture Capital. Siemens spends close to €5 billion (Rs27,800 crore) a year on R&D, and yet invests actively in start-ups, he adds. Siemens has changed its sector focus from communications to energy, healthcare and automation in India.