IBM Venture Capital Group has been combing the world for start-ups since 2000. India has been a focus area for the since mid-2006, especially for investments in enterprise solutions and knowledge process outsourcing (KPO) companies. Of the 1,300 companies that the group has touched worldwide, around 200 are in India. Unlike other corporate venture capital entities, IBM does not invest money in or aim to acquire such companies. Drew Clark, director of strategy at IBM Venture Capital Group, spoke to Mint about the company’s approach and the start-ups it wants to partner with here. Edited excerpts:
How does IBM execute its venture capital strategy?
An IBM business will go through its strategy, think about where it has a particular gap and form a shopping list. You can think of our organization as a pipeline of potential new partners for IBM – companies IBM needs in order to grow and stay ahead of the market. Unlike other companies, IBM is partner-driven to a large extent, with a full third of our revenues coming from our partners. Our strategy is to help a company get started and grow, so that while it flourishes, it also provides a great deal of value to IBM.
Do you invest directly?
We don’t put in our own funds. Instead, we partner with about 150 top-tier VCs around the world and invest our resources, skills and expertise. We invest in every other way except upfront capital.
Why don’t you have a fund?
When we first got started in 2000, we were trying to figure out whether it made sense for us to raise our own fund – something we could have done easily. We felt it was best for us to not play the game the traditional way, but focus instead on helping venture-backed companies get to the market and become partners for IBM. So we aren’t really a VC, since we don’t have a fund. You could call us strategic partners. In the Indian context, think of us as a matrimonial service that matches venture-backed start-ups with IBM business units.
Where does India fit in with your strategy?
Silicon Valley isn’t the centre of innovation any more. There is a lot of innovation in places like Mumbai, Bangalore, Pune — all over India. Just as there is in Beijing and Shanghai and Moscow and Sao Paulo.
What is your view of the Indian VC ecosystem?
It is coming along. A lot of money has been raised, but more importantly, a lot of money has been deployed since late last year. May be a bit too much in certain segments like travel and entertainment. So there are all kinds of questions, yet great progress has been made.
Who are you partnering with in India?
We are working with a few hundred entrepreneurs in India, not all venture-backed. InstaColl is an example of a company that has good traction locally, but needs a global partner to take it to the next step.
Then there is Persistent Systems, a Norwest company, which has an interesting model. They are India based, but have an office in the US – which is critical. They aggregate skills for product development. Despite our $6 billion annual R&D budget, we often need specific skills to complete what we do. For instance, if some of our clients want us to customize software, we know Persistent is there to do the job.
New approach: Drew Clark
We also have Virtella, another Norwest company, with whom we have partnered globally for their networking services. Some of our other partners are in enterprise IT, while others are in sectors such as retail. Some are in the KPO arena as well.
How are your partnerships structured?
Essentially, we explore ways to compliment some of our strengths with those of our partners. In telecom, for instance, if we are working with Bharti and they ask us to build infrastructure for a new kind of wireless telecommunications, we’ll do it ourselves. But we can’t meet all their requirements on our own, and there will be some gaps in other areas that fall outside our domain of expertise. So we then look at companies like venture-backed startups that will have a particular technology or skill to fill those gaps. This enables us to offer complete solutions to a customer like Bharti.
Do you look for certain sectors by country?
Yes. For instance, when you consider China and South Korea, what do you think of? You think of mobile wireless. Singapore has a lot innovation in digital media. When I think of India, I think web applications, especially mobile web applications, biotech, life sciences and clean technology.
What do you look for in management teams?
Technology skills aren’t enough. You’ve got to have the management skills. A typical start up these days has an R&D centre in Bangalore or Pune, a sales office in Palo Alto and a manufacturing unit in Beijing. That takes a great deal of skill to manage. Those skills are not in abundance.