Mumbai: Traditional businesses are increasingly investing in start-ups to tap into disruption and gain from emerging technologies. More than a dozen such businesses have made investments totalling $50 million in 11 start-ups in 2017, shows data from Venture Intelligence, a research service focused on private company financials, transactions and valuations.
One of the beneficiaries of this newfound interest is Happily Unmarried, a consumer products firm which received funding from Wipro Consumer Care, the personal care arm of Wipro Enterprises in November.
A strategic investor comes with domain and industry knowledge to help scale up the business rapidly, said Rajat Tuli, who co-founded Happily Unmarried in 2003.
“I see this trend increasingly growing, as it is a win-win for both the parties. We met a lot of people from venture capitalists to private equity and strategic investors. Wipro’s approach right from the very first meeting was very different. The team has a good level of expertise and the investment approach. The more we engaged with them, the more we realized that it’s a good team to partner with," Tuli said.
To be sure, large businesses are also hedging their risks, making small bets and putting in money as co-investors.
One example is Mahindra Partners, a unit of Mahindra and Mahindra Ltd, which invested $2 million in agri-technology start-up Gold Farm along with Infuse Ventures in October.
“As market leader in farm mechanization, Mahindra and Mahindra has always pioneered new technologies to benefit farmers around the world. Such new technologies power the emergence of the shared economy which we believe has great potential in the farm mechanization industry," said a spokesperson for Mahindra and Mahindra.
Bajaj Finance, on the other hand, is one those who have made bigger bets. The company invested $35 million in mobile wallet company Mobikwik in August.
“We aim to combine the synergies of both the organizations—deep rooted customer analytics and extreme focus on digital-oriented ecosystem will make this a disruptive proposition amongst our existing products. Bringing in debit and credit option in one app will facilitate stronger customer convenience, stimulating higher spends," Rajeev Jain, managing director, Bajaj Finance, had said while announcing the transaction.
At the heart of these decisions remains the need to buy into disruption.
“Either these business groups invest into other funds or invest directly in start-ups to find out what next big thing can happen in the space and to get aware of the ground situation that help them react accordingly. The main reason of investing in companies is to find out what are the businesses which can either complement or disrupt the existing businesses in order to diversify the existing ones," said George Mitra, chief executive officer at Avendus Wealth Management.
Some decisions, though, are not always born of financial need.
“One of the reasons could also be out of philanthropy or for social impact. Businesses take co-investment right in companies for subsequent rounds which the fund does. These businesses have invested in space where they are interested in and that is what we are witnessing these days," said Mitra.
Some want to leverage the capabilities of the start-ups.
“We are part of a diversified group which runs many businesses. Tomorrow, we can leverage the capability of startups; for example, our pharmaceutical business would help the healthcare companies expand and reach out to doctors. We could help them get quick access and wider distribution network," said Kunjan Chikhlikar, head at RPG Ventures, the corporate venture capital arm of RPG Enterprises.
RPG has incubated Seniority, an online portal that sells elderly care products to senior citizens. Through its venture capital arm, the transmission and tyres conglomerate also invested in MedsOnWay, an online pharmacy, and in Shieldsquare, a start-up that helps counter bots.
The motivations for these traditional groups are different from those of a financial investor.
“We are looking to invest in consumer, information technology, healthcare and some of the untapped sectors. We don’t have any allocated fund size for companies. Personally, we are building portfolio in areas of interest of us. We incubate and incorporate plus invest in companies," Chikhlikar added.
“We are not just financial investors who would typically fund a company and then exit eventually and neither do we have a typical time frame of investing. We would basically participate as equity stakeholders. We have leveraged the whole capability and added value to it," he said.