Big family businesses like Reliance, Birla showing more interest in startups in the digital space
Big Indian family business houses are now busy chalking out and implementing strategies to join the digital economy and get leverage from the ongoing startup boom.
A month ago, a similar initiative was launched by Aditya Birla Group, albeit at a smaller scale.
Big Indian family business houses, some of which were still debating whether it's worth foraying into the digital space till about a year ago, are now busy chalking out and implementing strategies to join the digital economy and get leverage from the ongoing startup boom. If you look at the history of conglomerates in the last 10-15 years many industries have become obsolete," said Vivek Rai Gupta, managing partner at GenNext Ventures, the venture capital arm of Reliance Industries. "It is imperative for large corporations to build innovation into whatever they are doing," he said.
While corporate houses such as Reliance Industries, Aditya Birla Group and RPG (RP Goenka) Group are looking to invest in startups closer to their businesses, some business families, like the Jindals of JSW Group, invest in startups in their personal capacity.
Apart from the acceleration programme, Reliance Industries also looks to work with more mature startups and entrepreneurs with promising ideas in areas relevant to the conglomerate's operations. It has backed startups such as Covascis, Ecorithim and Videonetics through GenNext Ventures, which has a war chest of Rs 200 crore, and owns travel portal Yatra and movies ticket booking site BookMyShow after its acquisition of the Network18 Group.
The number of startups operating in Reliance's GenNext Innovation Hub has quadrupled in one year to 40, including 10 enrolled in the accelerator programme.
The Harsh Goenka-led RPG Group, meanwhile, is scanning startups in health services, energy and sustainability, lifestyle and automotive services businesses, with an aim to create new businesses for the group, apart from accessing their talent, technology and marketing channels.
"We need to use this churn to create few new businesses for us," said Sachin Nandgaonkar, management board member at RPG. "Our focus is portfolio enhancement, not wealth creation, and we want to buy stakes in startups that we will allow us strategically influence decisions but keep the founders reasonably interested."
The group has evaluated at least 50 proposals between June and August and is interested in minority stakes at Seed or Series-A funding level.
Both Reliance Industries and RPG Group made it clear that they don't plan to acquire any startups at least for now, because this would turn founders into employees and kill the culture required for innovation.
Experts attribute family businesses' increasing interest in startups and the digital space in general to the stunning success of some new-age enterprises in the country as well as the influence of the new generation within business families. "In the past two-three years, conglomerates have realised that digital has to be an integral part of the business to retain, acquire and service customers, including management of social media," said Bharat Banka, for mer head of Aditya Birla Private Equity, who is now advising various business houses.
He said digital and startup ecosystem will be important for conglomerates who have businesses in retail, telecom and financial services. "Companies in these segments have been slow starters in adoption and realisation, but they have big pockets," Banka said.
"I think the next generation of wealth in India is not going to be created by brick and mortar business; it's going to be very internet dependent," said Parth Jindal, son of JSW-owner Sajjan Jindal.
JSW Group plans to tap the startup space to diversify its cyclical businesses of steel and cement and create wealth. "With all these 4G platforms coming up, the mobile penetration in the country is only going to increase," said the young Jindal who will lead the group's . 100-crore venture fund.` Experts said India Inc is still looking to just dip its toes with early stage investments in startups, and not willing to commit billions of dollars. "For the biggest conglomerate to create another Flipkart is impossible, because the amount of capital required they will have to think 10 times. So they are trying to incubate the next Flipkart in their own portfolios," said venture capitalist Sasha Mirchandani, whose family owns consumer electronics firm Onida.
Sanchit Vir Gogia, chief analyst and chief executive at Greyhound Research, said that while venture capitalists are moving to bigger-ticket funding, conglomerates are filling up the space with small or mid-ticket funding. "Conglomerates are trying, but there are these traditional leaders from the group about how this show should be done. These are young companies and need a different mindset of handling. Otherwise it is be a useless exercise,” he said.