A gleaming blue-and-white bus may not have been the first vehicle to grab attention at the Auto Expo 2018 last week but it was what was under the hood— and the collaboration behind it — that made it interesting. Seventy-year-old truck maker Ashok Leyland has partnered with Sun Mobility to build Circuit-S, an electric bus with a battery that can be swapped in four-minute— which means the vehicle can be on the road for longer hours without wasting time on recharges. While Ashok Leyland built the bus, Sun crafted the swappable battery that could make electric buses commercially viable for transport corporations.
Strategic partnerships like these between legacy businesses and startups, which marry experience with resourcefulness, are becoming increasingly common. Last year, traditional businesses invested more than $100 million in startups to gain from emerging technologies and new ideas, according to data from Venture Intelligence, which analyses private company financials.
Harsh Goenka, chairman, RPG Enterprises, explained why traditional businesses are focussing on startups.
In today’s age of disruption, businesses are being challenged by new technologies and quantum leaps in product and service innovation. To scout and invest in new businesses is no longer a matter of choice but necessary to be future-ready for the next few decades.
RPG Enterprises’ startup investments have been strategically aligned with new businesses that can complement or disrupt their existing businesses, he explained. RPG also incubates startups to tap into market opportunity, he said, citing the example of their $1 million investment in elderly-care e-commerce platform Seniority.
It is compatibility and opportunity that drive TVS Group’s Sundaram Finance to partner with startups as well.
We invest in startups in the fintech space, where we see relevance and linkages to our lending business. For example, in GyanDhan, we see an opportunity to use their platform to enhance offerings for our customers.
-said T T Srinivasa Raghavan, MD of Sundaram Finance.
The finance company invested an undisclosed amount in the online marketplace for educational loans last June.
Murugappa group’s Cholamandalam Investment and Finance has picked up a majority stake in White Data Systems, a tech aggregator platform that brings together load providers and transporters.
It is a new generation disruptive model which complements our role as a finance provider.
-said N Srinivasan, MD of Cholamandalam.
These startups find newer ways to do the same business, sometimes better. We may not be able to think the way they do and implement. So the best things for us was to identify a startup, see if an alignment was possible, and pick a stake and grow together.
Mahindra & Mahindra is investing in startups through its individual businesses and Mahindra Partners, the group’s incubation arm. Among its investments in startups are online experience tourism service Xoxoday, Gold Farm agriculture equipment aggregators, and home healthcare service Nightingale.
Different companies look at investments in their sector to leverage ideas that have popped outside.
-said Anish Shah, group president, strategy, Mahindra.
Manoj Agarwal, who co-founded Bengaluru-based Xoxoday (previously GiftXoxo) in 2012 along with three others, said that the Mahindra Group’s investment into his company was more than just an investment of Rs 3 crore. It significantly pushed up the number of corporate customers the company had. Now, a majority of its revenue comes from corporate clients. The company clocked Rs 40 crore in revenue in FY 2017.
The investment not only meant Agarwal had access to the expertise of Mahindra Holidays but also to the 20 different businesses under the Mahindra Group umbrella. “Companies like the Tatas, Mahindra and Infosys don’t invest like a typical venture capital firm does. They are not looking for good returns in a short period of time. They are in it for the long run, investing not to exit but to work with and grow the startups,” explained Agarwal. Xoxoday helps users and corporates book experiences in wellness, tourism and dining, and works with more than 500 companies.
Many of the conglomerates have separate business arms to look into these investments. At RPG Enterprises, its venture capital arm RPG Ventures makes calls on which early-stage companies in the technology, healthcare and infrastructure spaces to back, and identify the next big billion-dollar businesses for the group.
Kunjan Chikhlikar, head, RPG Ventures, said:
We have been consciously looking for companies addressing a large market with a differentiated business model, led by strong founding teams.
The firm invests in the pre-Series A or Series A stage so that it is involved from the startup’s early days. Investments are in the range of $0.5-2 million. The group has invested in Shields square, a cybersecurity business that has close synergies with the group’s IT business Zensar, which has a large market in the US. Medway, a subscription e-pharmacy, has seen “the benefits of a good working relationship with RPG Life Sciences.
Though they provide funding, the corporates are clear that startups are outside the main circle.
When we want to enter a new industry, we want to grow that startup and leverage the benefits of that business. We do not want to control these startups. They are founded and run by people with passion. We do not want a majority stake.
-said Mahindra’s Shah.
At the Auto Expo in Noida, Ashok Leyland CEO Vinod Dasari said:
We are working with quite a few startups particularly in the electric tech and digital space. We work with startups if they have the right technology but we have no plans to acquire any of them.
Traditional conglomerates feel these alliances are win-win.
With the intellectual prowess and execution expertise within the RPG Group and the domain expertise that startup entrepreneurs have, we are able to co-create an ecosystem that has access to capital, knowledge, market understanding and risk mitigation much faster than starting afresh.