Corporate venture capital (VC) funds backed by technology giants like Intel, SAP, Cisco and Qualcomm are making a beeline for India. While corporate VCs constituted less than 15 per cent of the overall VC investment for the 2004-07 period, so far 10 investments have been made by corporate VCs, with Intel Capital being the most active, according to a Venture Intelligence report.
Intel Capital has been in India for over 10 years now, and the entry of new players like SAP Ventures and Cisco is not only acknowledging the presence of India as a contributor to technology innovation, but also recognising it as a mature market, note analysts. For instance, Cisco started investing in 2005, only after it sensed a growing opportunity and the need to invest in an eco-system like India.
Jai Das, partner, SAP Ventures, says: “The Indian economy is growing and we foresee similar growth for the next 15-20 years. Due to this growth, there will be investment opportunities for the next couple of decades. We also see two trends. First, Indian enterprises and consumers are using, and are dependent on, technology.
These technology needs will not be met only by companies from the US or Europe. Second, Indian companies are now able to expand their focus on new geographies with characteristics similar to those of India. Some of these Indian companies are rapidly becoming market leaders in West Asia, Africa, Latin America, Emerging Europe, which enable us to back global companies like we do in the US,” he adds.
In a change in investment patterns, VCs are moving away from a co-investment model.
“They have mostly been co-investing with financial VCs until the last year. This year, we have seen Intel Capital and SAP Ventures doing deals, in which they are the sole investors. One of the reasons for this could be the fact that the types of investments these firms are looking for (in terms of sector and stage of company development) might be diverging from those of the financial VCs,” notes Arun Natarajan, CEO, Venture Intelligence.
Also Read
Agrees Das. He feels it is important for SAP to have this approach as this will provide a view into new innovative technologies, business models and new geographies. These goals cannot be achieved by being a limited partner in other funds. Therefore, SAP has decided to invest directly in India through SAP Ventures, he adds. The venture arm is also planning to gear up its India team in the next 12-18 months.
Partnering with corporate VCs has its own advantages too. These VCs are governed or driven by the overall technology road map that the parent company is following. On the other hand, entrepreneurs who chose to be with corporate VCs tend to get a headstart as these firms can take them directly to the marketplace.
Cisco, which has invested in 11 firms so far in India since 2005, has three focus areas while investing in firms: providing broadband applications, multimedia and video and services firms that align with Cisco’s future technology road map.
“We are interested in firms that provide us to fill technology gaps. For instance, the connected building systems vertical that Cisco has recently announced has technology contribution from such firms that fit in with the overall collaborative concept of the company,” adds Joydeep Bose, director, corporate business development, investments and acquisitions, Cisco Globalisation Centre East. The firm also feels co-investing is a better route.
Natarajan feels corporate VCs have an edge in their ability to make business introductions within the parent firm as well its customers and suppliers. Apart from that, it is their ability to remain invested for a longer period of time since they do not have pressure to exit an investment in a fixed time-frame like financial VCs.
Moreover, while return on investment (RoI) is a concern for corporate VCs, they are not impacted directly due to market conditions. Since the funds are allocated from the balance sheet, these VCs are not dependent on raising funds from investors.
“We are not bothered about raising funds as it is a part of Intel. However, that does not mean that our work becomes any easier as we still compete with many other VCs. Our target has been to close at least 12 or 24 deals per year. For the next 12 months, we are looking for higher activity in India,” said Sudheer Kuppam, managing director, India, Japan, Australasia and South-East Asia, Intel Capital.
Intel Capital, has invested in 43 Indian technology firms, a majority of which are as a sole investor. For 2008, the VC firm invested in six Indian technology firms. The current economic turmoil is certainly not a concern for these VCs as many see this as an opportunity to invest in firms, which till now where quoting higher valuations.