As the pioneers of Indian IT industry navigate the turbulent waters of tech disruptions, startups that have the advantage of being digital natives are coming to their rescue. Innovating fast has never been more critical for India’s IT giants, and they are realising that co-creating solutions with startups can provide them the much-needed ability to be nimble and agile.

Research firm CB Insights recently highlighted how Indian IT companies have been gradually upping their mergers, acquisitions and investment activity, attempting to bridge the innovation gap, and avoid being obsolete. Analysing acquisitions made by top IT companies during 2012-2017, CB Insights found HCL Tech and Wipro to lead the pack, picking up stakes in five startups each in the period, with Tech Mahindra and Mindtree acquiring four, Infosys and L&T Infotech three, and one startup each acquired by TCS and Mphasis. Further, a dive into the kind of startups being acquired showed that the IT doyens are striking deals to satisfy the digital transformation needs of their clients. Cloud services, automation, cybersecurity, internet of things (IoT) and big data emerged as the top sectors these acquisitions were made in.

“As an enterprise founder, I believe my company is better served by having investors who are not just VCs but corporate investors,” said Ram Menon, CEO of Avaamo, a startup funded by Wipro Ventures. Menon says Wipro has a ringside view and a stake in the success of cutting-edge AI technology. “Our investors are Intel, Eriksson, Wipro, Mahindra, all technology companies that compete in the broader AI market, not just financial investors counting numbers off spreadsheets. They play in this market and understand it.” As a founder there’s not much value in chasing purely financial investors, who have nothing to offer beyond money/valuation, especially in seed and Series A round, he said.

Infosys’ acquisition of Skava in 2015 for a consideration of $120 million was perhaps the earliest instance of an IT major attempting to invest big to face potential disruptions in a specific sector (notwithstanding how the buy turned out for Infosys). Infosys’new CEO Salil Parekh has himself dabbled in two acquisitions (Fluido and Wongdoody) since taking over in February. Speaking to TOI earlier in April, he said that the company intends to dedicate efforts to acquisitions as part of its three-year transformation plan.

Similarly, Wipro’s acquisition of Silicon Valley-based design consultancy Cooper in 2017 is also a step towards building futuristic capabilities. “With Cooper, an acknowledged leader and pioneer in the design community with roots on the East and West coast, we will now be the preeminent firm for world-class UX and interaction design,” Wipro said then.

At Cognizant, the acquisition strategy is focused on three objectives — digital, geographic and domain expansion. “The recent acquisitions of SoftVision, SaaSfocus, and ATG are part of this strategy and bring strong digital offerings,” Timothy Crowhurst, head of corporate development, Cognizant, told TOI. “For example, SoftVision, with its focus on design, technical and engineering expertise, aligns closely with our Cognizant Digital Engineering practice and together, we will be one of the top digital engineering companies in the world. Similarly, our acquisitions of SaaSFocus and ATG greatly expanded our Salesforce cloud capabilities.”

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Tech majors have also taken to investing in startups in a big way, with Infosys and Wipro setting up their own venture capital arms — the $500-million Infosys Innovation Fund and the $100-million Wipro Ventures fund. Between them, the two funds invested in 28 companies during 2012 to 2017. Infosys Innovation Fund focuses on early-stage startups working in the fields of big data and analytics, machine learning and cloud, with its portfolio including investment of over $2.3 million in Danish artificial intelligence startup Unsilo, and an undisclosed investment in Mumbai-based UAV solutions upstart ideaForge, among many others. Interestingly, Infosys Innovation Fund has looked beyond startups, becoming a limited partner in Bengaluru-based VC firm Stellaris Venture Partners.

Wipro Ventures, headed by chief strategy officer Rishad Premji, invests in early to mid-stage startups working on emerging tech, and their investments include US-based AI-powered chatbot Avaamo, Austria’s automated software testing platform Tricentis, and others. “The joint offering will help improve time-to-market and quality by augmenting end-to-end automation across the software testing lifecycle,” Wipro said in a statement, during the Tricentis investment.

Tech Mahindra and Cognizant have their own incubator programmes in TechMNxt and Cognizant Accelerator, but the investments by these (and other IT entities) have been largely scattered in nature. Tech Mahindra said its focus on engaging with startups stems from its goal to “being future-ready”. Jagdish Mitra, chief strategy and marketing officer, Tech Mahindra said they are working with over 50 startups under the TechMNxt initiative across India, US, UK and Israel.

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Speaking about whether these investments are an alternative to building capabilities in-house, Cognizant’s Crowhurst said they enhance their capabilities internally and acquisitions complement these initiatives. “In addition to adding growth, our acquisitions have also brought learnings around methodology, process and technologies; local delivery scale; advisory capabilities; training and enablement frameworks; and robust cross-pollination of ideas and collaboration between teams,” Crowhurst said. Tech Mahindra’s Mitra said they look to partner with startups “to expand our network of ideas and meet the changing customer demands.”

Such investments are a win-win for both the conglomerates and startups, according to ideaForge co-founder Ankit Mehta. ideaForge enjoys benefits of integration capabilities and business opportunities in its relationship with Infosys, he said, while helping Infosys solve customer challenges in advanced projects. “Whenever an opportunity or requirement arises, Infosys takes us to their customer, and helps pitch our solution,” he said. Manish Sehgal, partner at Deloitte India believes this is a growing trend that took a while to pick up in India, as tech companies waited for startup success stories to emerge. “Startups bring an industry-specific expertise and niche focus, which the IT players often do not have,” he said. On the other side, large enterprises help startups figure out the product-market fit of their solutions.

Indian IT giants, however, don’t seem too convinced by domestic entrepreneurial talent. While companies such as TCS and HCL Tech are yet to formalise their engagement with startups, the majority of enterprises that have managed to catch the eye of Wipro and Infosys’ funds are based outside India. An entrepreneur who wished to remain unnamed attributes this to the mindset of the Indian corporate world. “They want to acquire a startup, but will expect and insist on discounts on valuation,” he said, explaining why the co-innovation concept in India has a long way to go.



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