Old businesses tap startups for new ideas as 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 Leylandhas partnered with the upcoming Sun Mobility to build Circuit-S, an electric bus with a battery that can be swapped in four minutes — which means the vehicle will not only be cheaper but also on the road without wasting time on recharges. While Ashok Leyland built the bus, Sun crafted the swappable battery that could make electric buses commercially viable.
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.
Harsh Goenka, chairman, RPG Enterprises, explained why traditional business is 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 to be future-ready for the next few decades,” he said.
RPG Group’s startup investments have been strategically aligned to 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 TT 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 for us was to identify a startup, see if an alignment was possible, and pick a stake and grow together,” he said.
Mahindra & Mahindra is investing in startups through its individual businesses and Mahindra Partners, the group’s incubation arm. Among its investments in startups are Giftxoxo, which is into experience tourism, 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.
Many of the corporates have separate business arms to look into these investments. At the nearly 40-year-old RPG Group, 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 at 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 Shieldsquare, a cybersecurity business that has close synergies with the group’s IT business Zensar, which has a large market in the US. Medsonway, a subscription e-pharmacy, has seen “the benefits of a good working relationship with RPG Life Sciences,” said Chikhlikar.
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, 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,” said Goenka.