India Inc’s Pursuit of Innovators
Why
corporate biggies such as Godrej, Mahindra, Piramal and Infosys are backing new
ideas — both within and outside their companies
HR
Srinivasan, a former civil servant who joined the Chennai-based Shriram group
in 1992, recalls taking the idea of starting an IT company to group patriarch R
Thyagarajan in May 2000. “It was partly self-discovery and partly his faith in
me. He felt I had the ability to run a business,” says Srinivasan. When he
pitched the idea to Thyagarajan, he told the latter about his two concerns: the
minor one was the time it would take to build the business; but the more
important one was where he would get the capital from.
“He [Thyagarajan] said the group would back me. If it was not for the group, I would have met the fate of several fellow entrepreneurs,” Srinivasan adds. The “fate” he is referring to is having an idea but no capital to give it wings.
The Shriram group invested 2 crore initially in Take Solutions, which provides IT solutions primarily in the areas of life sciences and supply chain management, and of which Srinivisan is vice-chairman and managing director. Thanks to Thyagarajan’s initial support, Take Solutions, in which the Shriram group has over 20% stake, is now a company with 830 crore in revenues. “Entrepreneurship has actually become the DNA of the group. There is active mentoring here,” says Srinivasan, who is also vicechairman of Shriram Ventures, the holding company for the group’s non-financial services businesses.
Like Take Solutions, Shriram Properties, a Bangalore-based realtor, was also a result of a Shriram group executive wanting to branch out on his own, again backed by the group. Thyagarajan says the group has been investing small amounts since the 1980s in entrepreneurdriven companies. “There were not many new investments from 1998 to 2010. Now we are again looking to invest,” he says, adding the group’s investments in non-financial services could be conservatively pegged at 1,500 crore over the past 13 years.
India Inc turns VC
Start-ups in India have till recently had only venture capital (VC) and angel funds to turn to for capital. VC investments in the country in 2012 totalled $876 million. But now there is another avenue: India Inc. And it is not just the Shriram group that is playing VC. A few other big names in Indian business, including Piramal Enterprises, the Mahindra group, the Godrej group and Infosys, are following suit using different models and with varied objectives.
Take, for instance, the Godrej group. Its agribusiness company Godrej Agrovet in 2010 joined hands with other investors, including Hyderabad’s Nuziveedu Seeds to start Omnivore Capital, a VC fund focused on start-ups in the farm tech space.
The 240-crore fund, which has since been renamed Omnivore Partners, has invested in five start-ups so far, including India’s first private weather forecaster Skymet Weather Services, agricultural equipment maker Khedut Agro Engineering and pork producer Arohan Foods.
Adi Godrej, chairman of Godrej group, says since there are a lot of new agricultural technologies being developed by entrepreneurs globally, it made sense to both invest in start-ups and tap the technologies. Agrovet is working with Bangalore-based Frontal Rain Technologies, another investee company of Omnivore, on an IT-related project for its aqua feed business.
Mark Kahn, partner at Omnivore, adds that there could be long-term strategic synergies between Agrovet and the start-ups. “For instance, the Omnivore portfolio could create potential acquisition opportunities for Agrovet,” notes Kahn. But, he quickly adds, as a general partner, Agrovet’s fiduciary responsibility to deliver returns to Omnivore investors trumps all strategic considerations.
Unlike Godrej, for the Mahindra group its association with entrepreneurs was born out of a brand-building exercise titled “Rise”. B Karthik, senior general manager, corporate brand management, Mahindra & Mahindra (M&M), says the options before the group were advertising and creating long-term programmes, including giving grants to entrepreneurs. The group started inviting applications in August 2011 and has given out nearly 100 grants so far. Grants range from 4 lakh to 40 lakh. “We received 9,000 applications, of which 2,000 were shortlisted. We are sector-agnostic and fund both for-profit and not-for-profit initiatives,” notes Karthik.
Chairman Anand Mahindra says the group provides more than just capital to entrepreneurs. “The group’s ‘federation structure’ [which empowers heads of businesses to take strategic decisions] enables even the smallest business to use the ‘Mahindra’ brand, adopt its management processes and leverage its financial resources, while providing the managerial freedom to articulate a strategy and vision.” Mahindra knows what he is talking about, with the group having a track record of nurturing and growing new businesses across industries, from Mahindra Finance and Tech Mahindra to Mahindra Holidays and Mahindra Lifespaces.
Vishisht Bhatia, co-founder of rural business process outsourcing (BPO) firm Sookshm Info Services in Bijnor district of Uttar Pradesh, says although the 4 lakh he got from Mahindra may not seem like a big amount, it was crucial to the founding of the company. Sookshm currently employs 50 people.
Mahindra adds that entrepreneurs “need mentorship and guidance as they scale up and the resources to survive any mistakes along the way. In the Indian business context where there are large, entrepreneurial business houses and where opportunities abound aplenty, the federation structure can make ‘small’ look ‘big’ — that is provide even ‘small’ businesses managerial focus and discipline, while allowing them to leverage ‘large’ company brands, management processes and financial resources, thereby enhancing probability of success.”
Sourcing Innovations
Karthik says M&M is keen to go beyond just giving out grants. “We would like to pick up a stake in start-ups,” he adds. In addition, the programme has also seen M&M employees and outsiders pitching new technologies. “We have got 15-20 technology proposals so far, including from a set of students who had a hydraulic wheel lock technology for vehicles to get off slush during the rains. Tomorrow’s innovations are going to be opensource,” says Karthik.
While crowdsourcing innovations may be new to India, several companies in the West, including Procter & Gamble (P&G) and General Electric have been doing this for a while (see Global Initiatives). P&G, t h ro u g h P& G Connect + Develop, allows for cocreation of new products and packaging, with external entities. One such product is Tide Pods, developed by P&G with Indiana, US-based polymer film producer Monosol. A Tide Pod has detergent, a stain remover and a brightener in three different casings, which stay separate till the pod is put in water.
Besides accessing new technologies, companies like Microsoft and Google are encouraging start-ups in areas like mobile, gaming and advertising, where they have a presence. Infosys decided to tread the path when in April it announced a $100-mn fund for innovations related to its core business within the company and outside. Infosys could do with groundbreaking innovations, given its tough run in its traditional mainstay of software services and solutions. Cognizant Technology Solutions recently pipped Infosys to become the second largest Indian IT firm by revenues, after Tata Consultancy Services.
But backing start-ups is not new for Infosys, which is itself India’s most-storied entrepreneurial venture. OnMobile Global, the 725-crore mobile value-added services company, was incu- bated at Infosys in 2000. Infosys refused to comment for the article citing the “silent period” before its quarterly results.
More than Returns
While on the one hand funding new ideas could bring economic benefits for a company, on the other it could be an effective way of spending as part of corporate social responsibility (CSR). Piramal Foundation, the CSR arm of Piramal Enterprises, is an example of the latter. Founded seven years ago under the leadership of Harvard-educated social entrepreneur Anand Shah, the foundation set up Grassroots Development Laboratory, out of which was born Piramal Water which sells clean drinking water for 30 to 50 paise per litre in villages in six states under brand name Sarvajal.
Anil K Gupta, professor at the Indian Institute of Management, Ahmedabad (IIM-A), and executive chairman of National Innovation Foundation, says there is no doubt that funding social entrepreneurship is preferable to just setting up a school or a hospital.
“It’s not either this or that for us. But ideas like Sarvajal definitely have scalability,” says Ajay Piramal, chairman of Piramal Enterprises. Sarvajal operates on the franchise model, has over 150 water purification installations and reaches 1,00,000 people every day. Other initiatives include a rural BPO and a training programme for school headmasters. “The challenge is how does one sustain some of these initiatives without a charitable foundation,” says Paresh Parasnis, head of Piramal Foundation.
Mahindra explains that philanthropy and social entrepreneurship are two separate pillars of CSR. “Today we need schools and hospitals to augment poor public infrastructure in the education and healthcare sectors. While philanthropy is essential for the needy, consumers — even poor consumers — are willing to pay for quality. Herein lies the opportunity for a social enterprise.”
Mahindra illustrates this point with a CSR initiative embarked upon a few years ago: Mahindra Pride Schools. The schools impart vocational training to youngsters from socially and economically disadvantaged communities. “The three-month programmes so far have delivered a 100% placement track record. Buoyed by the success of the first four Pride Schools, we have decided to tweak the business model and are planning to spin this off as a for-profit social enterprise,” says the M&M group chairman.
VCs Versus India Inc
While start-ups cannot ignore VCs, there are several reasons for them to prefer a company. “VCs are always obsessed with valuations. Companies, however, understand where you are coming from, and are firmly steeped in reality. Because they are in multiple business, some companies bring great value to a start-up,” says Jatin Singh, founder & CEO of Skymet.
Piramal Water’s chief operating officer Anuj Sharma concurs with him: “Some businesses like utilities [water] take a long time to become profitable. A corporate house would understand that.” Anil Joshi, head of operations at Mumbai Angels, a group of angel investors, believes a company’s assistance to a start-up could go beyond funding and include issues related to human resources, supply chain management and even strategy.
Mukund Mohan, CEO-in-residence, Microsoft Accelerator, says only one or two out of every 10 venture-backed start-ups are successful. “The reasons for failure are usually the lack of focus and inability to build a sustainable business foundation, or the absence of good quality mentors and advice from someone who has been there and done that,” he notes. Several such entrepreneurs like Infosys founders Kris Gopalakrishnan and NR Narayana Murthy are supporting innovators in their personal capacity too (see The Individual Push). Microsoft Accelerator, part of Microsoft Ventures, helps entrepreneurs in bringing their ideas to fruition. There are five Accelerators across the world, including one in Bangalore.
Harsh Mariwala, chairman of Marico, says there are enough funding options for entrepreneurs. “If you have a good idea you will find someone to fund you. But that’s not enough and companies can play a big role in helping start-ups grow bigger but they don’t realise the value of entrepreneurs,” he adds. The Marico Innovation Foundation helps government and private agencies and companies in overcoming challenges to innovation and also scaling up.
Longer Distance to Travel
While Indian companies have to do a lot more to match their American counterparts in encouraging and taking advantage of the entrepreneurial communities around them, some say it’s not fair to blame India Inc for not doing enough. “The private sector in India itself has been encouraged only in the past two decades. Things will change,” says Godrej. It is certainly not going to be difficult for companies to find interesting ideas to invest in. “People are giving up lucrative job offers to create something of their own, thereby boosting their own personal wealth, the economy in general and creating jobs. Entrepreneurship is fast-becoming the preferred avenue for smart people who dare to take risks and realise their dreams,” says Mohan.
Talking of ways to scale up India Inc’s engagement with start-ups Gopalakrishnan, who is chief mentor of the Start-up Village near Kochi, says: “It will work only if it’s part of a company’s objectives. It can then get access to new technologies and maybe even acquire start-ups.” IIM-A’s Gupta says Indian companies have the wherewithal to do more to support entrepreneurs. He adds that it does not matter which sector they choose to fund as long as they fund and mentor hundreds of start-ups every year.
“He [Thyagarajan] said the group would back me. If it was not for the group, I would have met the fate of several fellow entrepreneurs,” Srinivasan adds. The “fate” he is referring to is having an idea but no capital to give it wings.
The Shriram group invested 2 crore initially in Take Solutions, which provides IT solutions primarily in the areas of life sciences and supply chain management, and of which Srinivisan is vice-chairman and managing director. Thanks to Thyagarajan’s initial support, Take Solutions, in which the Shriram group has over 20% stake, is now a company with 830 crore in revenues. “Entrepreneurship has actually become the DNA of the group. There is active mentoring here,” says Srinivasan, who is also vicechairman of Shriram Ventures, the holding company for the group’s non-financial services businesses.
Like Take Solutions, Shriram Properties, a Bangalore-based realtor, was also a result of a Shriram group executive wanting to branch out on his own, again backed by the group. Thyagarajan says the group has been investing small amounts since the 1980s in entrepreneurdriven companies. “There were not many new investments from 1998 to 2010. Now we are again looking to invest,” he says, adding the group’s investments in non-financial services could be conservatively pegged at 1,500 crore over the past 13 years.
India Inc turns VC
Start-ups in India have till recently had only venture capital (VC) and angel funds to turn to for capital. VC investments in the country in 2012 totalled $876 million. But now there is another avenue: India Inc. And it is not just the Shriram group that is playing VC. A few other big names in Indian business, including Piramal Enterprises, the Mahindra group, the Godrej group and Infosys, are following suit using different models and with varied objectives.
Take, for instance, the Godrej group. Its agribusiness company Godrej Agrovet in 2010 joined hands with other investors, including Hyderabad’s Nuziveedu Seeds to start Omnivore Capital, a VC fund focused on start-ups in the farm tech space.
The 240-crore fund, which has since been renamed Omnivore Partners, has invested in five start-ups so far, including India’s first private weather forecaster Skymet Weather Services, agricultural equipment maker Khedut Agro Engineering and pork producer Arohan Foods.
Adi Godrej, chairman of Godrej group, says since there are a lot of new agricultural technologies being developed by entrepreneurs globally, it made sense to both invest in start-ups and tap the technologies. Agrovet is working with Bangalore-based Frontal Rain Technologies, another investee company of Omnivore, on an IT-related project for its aqua feed business.
Mark Kahn, partner at Omnivore, adds that there could be long-term strategic synergies between Agrovet and the start-ups. “For instance, the Omnivore portfolio could create potential acquisition opportunities for Agrovet,” notes Kahn. But, he quickly adds, as a general partner, Agrovet’s fiduciary responsibility to deliver returns to Omnivore investors trumps all strategic considerations.
Unlike Godrej, for the Mahindra group its association with entrepreneurs was born out of a brand-building exercise titled “Rise”. B Karthik, senior general manager, corporate brand management, Mahindra & Mahindra (M&M), says the options before the group were advertising and creating long-term programmes, including giving grants to entrepreneurs. The group started inviting applications in August 2011 and has given out nearly 100 grants so far. Grants range from 4 lakh to 40 lakh. “We received 9,000 applications, of which 2,000 were shortlisted. We are sector-agnostic and fund both for-profit and not-for-profit initiatives,” notes Karthik.
Chairman Anand Mahindra says the group provides more than just capital to entrepreneurs. “The group’s ‘federation structure’ [which empowers heads of businesses to take strategic decisions] enables even the smallest business to use the ‘Mahindra’ brand, adopt its management processes and leverage its financial resources, while providing the managerial freedom to articulate a strategy and vision.” Mahindra knows what he is talking about, with the group having a track record of nurturing and growing new businesses across industries, from Mahindra Finance and Tech Mahindra to Mahindra Holidays and Mahindra Lifespaces.
Vishisht Bhatia, co-founder of rural business process outsourcing (BPO) firm Sookshm Info Services in Bijnor district of Uttar Pradesh, says although the 4 lakh he got from Mahindra may not seem like a big amount, it was crucial to the founding of the company. Sookshm currently employs 50 people.
Mahindra adds that entrepreneurs “need mentorship and guidance as they scale up and the resources to survive any mistakes along the way. In the Indian business context where there are large, entrepreneurial business houses and where opportunities abound aplenty, the federation structure can make ‘small’ look ‘big’ — that is provide even ‘small’ businesses managerial focus and discipline, while allowing them to leverage ‘large’ company brands, management processes and financial resources, thereby enhancing probability of success.”
Sourcing Innovations
Karthik says M&M is keen to go beyond just giving out grants. “We would like to pick up a stake in start-ups,” he adds. In addition, the programme has also seen M&M employees and outsiders pitching new technologies. “We have got 15-20 technology proposals so far, including from a set of students who had a hydraulic wheel lock technology for vehicles to get off slush during the rains. Tomorrow’s innovations are going to be opensource,” says Karthik.
While crowdsourcing innovations may be new to India, several companies in the West, including Procter & Gamble (P&G) and General Electric have been doing this for a while (see Global Initiatives). P&G, t h ro u g h P& G Connect + Develop, allows for cocreation of new products and packaging, with external entities. One such product is Tide Pods, developed by P&G with Indiana, US-based polymer film producer Monosol. A Tide Pod has detergent, a stain remover and a brightener in three different casings, which stay separate till the pod is put in water.
Besides accessing new technologies, companies like Microsoft and Google are encouraging start-ups in areas like mobile, gaming and advertising, where they have a presence. Infosys decided to tread the path when in April it announced a $100-mn fund for innovations related to its core business within the company and outside. Infosys could do with groundbreaking innovations, given its tough run in its traditional mainstay of software services and solutions. Cognizant Technology Solutions recently pipped Infosys to become the second largest Indian IT firm by revenues, after Tata Consultancy Services.
But backing start-ups is not new for Infosys, which is itself India’s most-storied entrepreneurial venture. OnMobile Global, the 725-crore mobile value-added services company, was incu- bated at Infosys in 2000. Infosys refused to comment for the article citing the “silent period” before its quarterly results.
More than Returns
While on the one hand funding new ideas could bring economic benefits for a company, on the other it could be an effective way of spending as part of corporate social responsibility (CSR). Piramal Foundation, the CSR arm of Piramal Enterprises, is an example of the latter. Founded seven years ago under the leadership of Harvard-educated social entrepreneur Anand Shah, the foundation set up Grassroots Development Laboratory, out of which was born Piramal Water which sells clean drinking water for 30 to 50 paise per litre in villages in six states under brand name Sarvajal.
Anil K Gupta, professor at the Indian Institute of Management, Ahmedabad (IIM-A), and executive chairman of National Innovation Foundation, says there is no doubt that funding social entrepreneurship is preferable to just setting up a school or a hospital.
“It’s not either this or that for us. But ideas like Sarvajal definitely have scalability,” says Ajay Piramal, chairman of Piramal Enterprises. Sarvajal operates on the franchise model, has over 150 water purification installations and reaches 1,00,000 people every day. Other initiatives include a rural BPO and a training programme for school headmasters. “The challenge is how does one sustain some of these initiatives without a charitable foundation,” says Paresh Parasnis, head of Piramal Foundation.
Mahindra explains that philanthropy and social entrepreneurship are two separate pillars of CSR. “Today we need schools and hospitals to augment poor public infrastructure in the education and healthcare sectors. While philanthropy is essential for the needy, consumers — even poor consumers — are willing to pay for quality. Herein lies the opportunity for a social enterprise.”
Mahindra illustrates this point with a CSR initiative embarked upon a few years ago: Mahindra Pride Schools. The schools impart vocational training to youngsters from socially and economically disadvantaged communities. “The three-month programmes so far have delivered a 100% placement track record. Buoyed by the success of the first four Pride Schools, we have decided to tweak the business model and are planning to spin this off as a for-profit social enterprise,” says the M&M group chairman.
VCs Versus India Inc
While start-ups cannot ignore VCs, there are several reasons for them to prefer a company. “VCs are always obsessed with valuations. Companies, however, understand where you are coming from, and are firmly steeped in reality. Because they are in multiple business, some companies bring great value to a start-up,” says Jatin Singh, founder & CEO of Skymet.
Piramal Water’s chief operating officer Anuj Sharma concurs with him: “Some businesses like utilities [water] take a long time to become profitable. A corporate house would understand that.” Anil Joshi, head of operations at Mumbai Angels, a group of angel investors, believes a company’s assistance to a start-up could go beyond funding and include issues related to human resources, supply chain management and even strategy.
Mukund Mohan, CEO-in-residence, Microsoft Accelerator, says only one or two out of every 10 venture-backed start-ups are successful. “The reasons for failure are usually the lack of focus and inability to build a sustainable business foundation, or the absence of good quality mentors and advice from someone who has been there and done that,” he notes. Several such entrepreneurs like Infosys founders Kris Gopalakrishnan and NR Narayana Murthy are supporting innovators in their personal capacity too (see The Individual Push). Microsoft Accelerator, part of Microsoft Ventures, helps entrepreneurs in bringing their ideas to fruition. There are five Accelerators across the world, including one in Bangalore.
Harsh Mariwala, chairman of Marico, says there are enough funding options for entrepreneurs. “If you have a good idea you will find someone to fund you. But that’s not enough and companies can play a big role in helping start-ups grow bigger but they don’t realise the value of entrepreneurs,” he adds. The Marico Innovation Foundation helps government and private agencies and companies in overcoming challenges to innovation and also scaling up.
Longer Distance to Travel
While Indian companies have to do a lot more to match their American counterparts in encouraging and taking advantage of the entrepreneurial communities around them, some say it’s not fair to blame India Inc for not doing enough. “The private sector in India itself has been encouraged only in the past two decades. Things will change,” says Godrej. It is certainly not going to be difficult for companies to find interesting ideas to invest in. “People are giving up lucrative job offers to create something of their own, thereby boosting their own personal wealth, the economy in general and creating jobs. Entrepreneurship is fast-becoming the preferred avenue for smart people who dare to take risks and realise their dreams,” says Mohan.
Talking of ways to scale up India Inc’s engagement with start-ups Gopalakrishnan, who is chief mentor of the Start-up Village near Kochi, says: “It will work only if it’s part of a company’s objectives. It can then get access to new technologies and maybe even acquire start-ups.” IIM-A’s Gupta says Indian companies have the wherewithal to do more to support entrepreneurs. He adds that it does not matter which sector they choose to fund as long as they fund and mentor hundreds of start-ups every year.
::
G Seetharaman ETM130707
The
Individual Push
In late 2009, when NR Narayana Murthy founded Catamaran Ventures, a VC fund with a corpus of 600 crore, not many were surprised. Murthy after all was among India’s best-known entrepreneurs and it was only natural that he would fuel other entrepreneurial dreams. Catamaran’s investments include SKS Microfinance, Gurgaon-based Hector Beverages. While Infosys vice-chairman Kris Gopalakrishnan is involved with the Startup Village near Kochi, his former colleague TV Mohandas Pai runs a 500-cr PE fund with Ranjan Pai of Manipal group.
These men are not alone. Several current and former executives of companies are finding ways to engage with the start-up community. Ronnie Screwvala, who made a 800-crore windfall by selling his stake in UTV Software to Disney, is funding ventures that have a social impact via investment firm Unilazer Ventures.
Similarly, Shravan Shroff, founder of Fame Cinemas which he sold to Inox Leisure in 2010, founded startup accelerator VentureNursery with Ravi Kiran, ex-CEO, Southeast and South Asia, Starcom Mediavest Group. Another media man who has launched an accelerator is Rajesh Sawhney, former president of Reliance Entertainment, who runs GSF Superangels. There are other media professionals, too, who have had a similar career trajectory lately. Haresh Chawla, former group CEO of Network 18, joined India Value Fund Advisors as partner last year. There are several angel investors in India who are successful entrepreneurs in their own right, like Google India MD Rajan Anandan and Deep Kalra of Makemytrip. Wipro chairman Azim Premji also has his own investment fund — Premji Invest.
In late 2009, when NR Narayana Murthy founded Catamaran Ventures, a VC fund with a corpus of 600 crore, not many were surprised. Murthy after all was among India’s best-known entrepreneurs and it was only natural that he would fuel other entrepreneurial dreams. Catamaran’s investments include SKS Microfinance, Gurgaon-based Hector Beverages. While Infosys vice-chairman Kris Gopalakrishnan is involved with the Startup Village near Kochi, his former colleague TV Mohandas Pai runs a 500-cr PE fund with Ranjan Pai of Manipal group.
These men are not alone. Several current and former executives of companies are finding ways to engage with the start-up community. Ronnie Screwvala, who made a 800-crore windfall by selling his stake in UTV Software to Disney, is funding ventures that have a social impact via investment firm Unilazer Ventures.
Similarly, Shravan Shroff, founder of Fame Cinemas which he sold to Inox Leisure in 2010, founded startup accelerator VentureNursery with Ravi Kiran, ex-CEO, Southeast and South Asia, Starcom Mediavest Group. Another media man who has launched an accelerator is Rajesh Sawhney, former president of Reliance Entertainment, who runs GSF Superangels. There are other media professionals, too, who have had a similar career trajectory lately. Haresh Chawla, former group CEO of Network 18, joined India Value Fund Advisors as partner last year. There are several angel investors in India who are successful entrepreneurs in their own right, like Google India MD Rajan Anandan and Deep Kalra of Makemytrip. Wipro chairman Azim Premji also has his own investment fund — Premji Invest.
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