Corporate VCs step on the gas

Intel Capital, IBM, SAP Venture, Qualcomm Ventures increase India focus. July Systems, which developed a mobile broadband platform, has just received funding from Intel Capital.

The company intends to use the money to expand its teams in North America and the Asia Pacific, in addition to stepping up research & development.

Similarly, last year, Qualcomm Ventures led a $9-million funding of MapmyIndia to help build global positioning system and location-based services.

For start-ups working on new technology, moving to the next is often a tough task. While funding is one hurdle, the in-house work done by the likes of Intel, Qualcomm, IBM and SAP – which have their venture capital arms – comes handy.

"They work on a host of cutting-edge technologies. Along with money, there is hand-holding on that front. Besides, they help access new customers and industries," says Shivalik Prasad, director, MapMyIndia, in which Qualcomm Ventures invested last year.

"Intel Capital's strategic investment will enhance the appeal of our offering," says Rajesh Reddy, founder and CEO, July Systems.

Often, large companies which otherwise would be reluctant to meet vendors from start-ups end up tying up with these companies, all due to the effort put in by corporate VCs, says an entrepreneur working on mobile applications.

Though the share of corporate VCs in the overall pie is around 10 per cent, this is expected to grow on the back of an enhanced focus on India.

Intel has been the most active during the past 12 years in India, making a cumulative investment of $200 million into technology companies from two funds. It is aggressively rolling out more.

"We believe that India is poised for the next phase of growth. Intel Capital's investment will help with global resources, knowledge and expertise to assist these companies with their growth and success," says Arvind Sodhani, president of Intel Capital and Intel executive vice-president.

IBM Venture Capital has joined the fray during the past 10 days by announcing a global programme to support innovation in India with focus on sectors such as energy, healthcare and telecommunications.

Under the new programme, IBM will provide access to its research community as well as sales, marketing and technical skills, though IBM Venture Capital does not invest directly in companies.

"Businesses around the world are increasingly applying new technologies to address industry-specific needs and technology start-ups are looking for new ways to capitalise on this trend," says Claudia Fan Munce, vice-president of corporate strategy and managing director of IBM Venture Capital Group.

During the past 12-18 months, SAP Venture and Qualcomm Ventures have also stepped up investments. Typically, as against the aggressiveness of Intel Capital, SAP or Qualcomm prefer to co-invest along with pure-play VCs and are much more focused on their respective technologies.

Though many of these global technology giants invest directly from their balance sheets, some create focused VC funds, just like pure-play VC funds.

"Corporate VCs increasing their scope of operations here is a good development. We do not see them as competition but as co-investors in many of our deals. They bring enormous network strength to the entrepreneur," says Alok Mittal, managing partner, Canaan Partners.

Some industry players, however, say that aligning with corporate VCs at an early stage may not be a good idea. "For example, few companies may want to align a start-up's business plan with their own product roadmap and this may sometime create hurdles in the company's growth," said a VC player.

While a pure-play VC fund is more focusses on maximising value for the entrepreneur, a corporate VC may be sometimes more focused on maximising the strategic fit as part of its overall game plan.

"So, it is advisable to accept investments from these companies at a later stage – like in second and third rounds of investments when the strategy is much more concrete and laid out," he added.

But the head of a corporate VC-assisted start-up says he has not faced any problem so far. "Typically, they look at what is missing in their portfolio. Obviously, it has to have some sort of a fit. But so far, we have not had to change our strategy or alter our product," he says.

While these differences may pop up time and again, entrepreneurs are welcoming the expansion of corporate VCs in India.