Silicon Valley start-ups score over India in VC evaluation

BENGALURU, INDIA: Even as investors and supporting bodies brag about the growing confluence of the start-up industry in India, corporate venture capital arms are giving the domestic start-ups a royal miss.

Instead, they are looking at Silicon Valley-based start-ups. For instance, Infosys and Wipro—India’s largest outsourcing firms are leading the new trend.

According to a report in Economic Times, senior executives of these companies meet about 12 Silicon Valley-based start-ups every week.  Anirban Sen who authored the report noted, “These executives are starting to quietly acknowledge one fact—India's start-up ecosystem is still at a very nascent stage and finding early-stage firms to invest in or even buy out is proving to be a tricky affair.”

ET quoted Navin Budhiraja, Senior Vice President, Infosys, "I think in the Valley, the ecosystem is much more mature—there is no question about that. There is a lot more quality and quantity— we should not try to debate that."

"Most of the start-ups (in India) we see today are probably on the consumer side of things. I have not yet seen enough start-ups that serve the enterprise, except in areas such as big data where we see a lot of activity," said Budhiraja. "It's still early days in India. Many of the entrepreneurs are first-time entrepreneurs."

"The Valley is obviously a broader ecosystem. In India, the ecosystem is getting there, there is a lot of interest around it and (Infosys) being an Indian company will try to leverage that ecosystem as much as possible," said Abdul Razack, Head, Platforms, Infosys.

Sen who quoted experts such as Vivek Wadhwa, however, reported that Indian IT firms are ignoring local start-ups at their own peril.

"(Indian IT firms) don't understand the urgency of the technology threat-...Look at the current crop of unicorns. Many of them are going to justify their valuations. They were not taken seriously by Indian IT and other industries as well — until they started making front page news," said Wadhwa, a fellow at Stanford University's Arthur and Toni Rembe Rock Center for Corporate Governance.

Is this the ground reality?

Sen who spoke to industry insiders reported that India is far from producing world-class enterprise start-ups that are capable of producing disruptive ideas and solutions for top Fortune 500 companies such as General Electric and Citigroup, who form the bulk of clientele of Indian IT services firms.

So where are the bets as of today?

Wipro's $100-million venture capital firm, which was set up in 2014 and is being spearheaded by board member and strategy chief Rishad Premji, has so far invested only in US and Valley-based start-ups, ET reported.

Till date, the company has picked up minority stakes in five US-based firms—Opera Solutions, Drivestream, Axeda (Wipro's stake was later acquired by PTC), artificial intelligence start-up Vicarious and big data start-up Talena.

Wipro has placed two of its senior most executives, Venu Pemmaraju and Biplab Adhya, who head Wipro Ventures and report to Premji, in the Valley, and is in the process of setting up an innovation center to tap local start-ups.

Infosys too has invested a lot of money in large acquisitions and start-up in the US, barring exceptions such as ANSR Consulting and Israel-based Panaya.

The upper hand?

A board member of one of India's top four IT services company said that Valley-based start-ups have an edge over Indian start-ups for several reasons. "First, there is an exceptional ecosystem which nurtures and grows them.

Second, there is additional very large venture capital that is very willing to co-invest. Third, university ecosystem allows them to get the best and the brightest as interns at very low cost. Finally, it enables Indian IT Services enterprises to truly become global," he said, requesting anonymity as he is not authorised to speak to the media.