Mumbai: Even as investors turn cautious in the market downturn, so-called corporate venture investing firms, particularly in the technology domain, continue to invest actively in India.
Investment arms of firms such as Intel Corp., Cisco Systems Inc. and Qualcomm Inc. are making investments here since the beginning of the year in young companies that fit into their investment premise.
Strategic investor: Joydeep Bose, director, Cisco Systems.
Corporate VC (short for venture capital) investors participated in at least four of the 12 venture deals that have been announced in the first six weeks of 2009 (see table). This includes a $9 million or Rs44.91 crore investment in Delhi-based map provider CE Info Systems (P) Ltd led by Qualcomm Ventures last week and three investments totalling $23 million led by Intel Capital.
As a proportion of total venture deals, this is significantly higher than last year’s figures. In 2008, strategic investors participated in at least 16 of 123 deals, forming 13% of the total venture investments, according to data from Venture Intelligence, a deal-tracking database from Chennai. It’s very early this year, but the share of corporate VCs in total transactions in the venture investing space may likely end significantly higher than 2008 given the overall slowdown in deals led by financial VC firms.
While financial venture investors raise funds from external limited partners, commonly referred to as LPs, such as university endowments, business families and pension funds, corporate VCs typically invest out of the company balance sheet or raise dedicated funds internally—making them less shy of a slowdown. “Companies with a stronger balance sheet and cash reserves will benefit in the downturn,” predicts Sudheer Kuppam, managing director for India, Japan, Australasia and South-East Asia at Intel Capital. While some corporate VCs have raised dedicated India funds, others such as Siemens AG, as also Intel and Qualcomm, invest from company balance sheets. Still others, such as Google Inc., Motorola Ventures invest indirectly, by backing early-stage funds.
Also See Corporate VC’s Lead (PDF)
In recent times, LPs of venture funds have turned cautious, particularly in the US, and this will reflect in the pace of investments, say investors. As the bar is raised higher for companies, new deals are also taking longer to close, slowing down overall deal activity. Cash-rich technology firms, however, say they will continue to invest at the same pace as before.
Intel Capital, which invested $51 million in nine companies in 2008, expects to maintain similar deal flow this year as well. It has invested about 40% of its dedicated India fund of $250 million. Cisco, which has allocated $200 million for investments here, has committed about $70 million so far, including an undisclosed $15 million investment which it is in the midst of closing.
“We might run out of ideas and investment opportunities, but we won’t run out of capital,” says Joydeep Bose, director, corporate business development, Cisco Systems.
A tight sector focus helps corporate VCs to go ahead with its deals. Intel Capital, for instance, invests in firms that help raise adoption of computers and related technologies, in sectors such as mobility, clean technology, education and consumer Internet.
One similarity remains. Like their financial counterparts, corporate VCs in India, too, are making the shift from early-stage to growth companies. Investors such as Intel and Cisco intend to fund later-stage companies as well. “We are finding very good deals as (later-stage) companies are coming back to private market for capital, and everyone’s appetite for very early-stage companies has come down,” explains Bose.
Homegrown corporate VC funds, an early phenomenon yet, are planning to scale up. Such outfits include Bharti Airtel Ltd, India’s biggest mobile phone services firm by customers, which raised a $44 million tech innovation fund last year, and Capital 18, the venture and private equity arm of media house Network 18.
Capital 18 too plans to shift to later-stage growth companies by raising external funds, instead of investing entirely on its own. “I’d now like to move up the chain and do larger deals. The question is over the next 12-24 months, how much money can we raise externally and truly make this a private equity business,” says Sarbvir Singh, managing director of Capital18.
Companies that have received funding from corporate VCs also say that the strategic benefits of the investor is more significant at a later stage in the company. CE Info Systems, which operates under brand MapmyIndia, raised institutional capital from financial venture investors before sealing its next round with Qualcomm Ventures. “Today, a strategic investor adds more value because it can accelerate adoption in the market for us,” says Rohan Verma, director, CE Info Systems.
Sanat Vallikappen contributed to this story.