RIL may invest in mature start-ups to deploy Rs 5,000-cr fund

Mukesh Ambani-announced VC fund will promote start-ups on Jio's telecom network

Early this month when Reliance Industries (RIL) chief Mukesh Ambani announced a Rs 5,000-crore proprietary venture capital (VC) fund, RIL joined the growing club of  conglomerates offering capital to digital start-ups.

The conglomerates are offering capital for not only making financial gains, but also to identify the businesses of tomorrow. Mahindra Partners, the proprietary fund from Mahindra & Mahindra, has also put its focus on investing in digital start-ups for the same reason.

RIL announced the venture fund along with the Jio launch, its telecom venture that offers pan-India digital infrastructure. “Our aim is to build a platform for young Indians, who want to create digital businesses of the future,” said Ambani talking about Jio Digital India Startup Fund at the RIL annual general meeting. RIL plans to create digital entrepreneurship hubs in key cities across the country and find thousands of entrepreneurs to partner with.

The VC fund is, in addition to GenNext Hub, a four-month accelerator programme that RIL runs in collaboration with tech giant Microsoft to help early stage digital start-ups scale. The programme provides start-ups access to funding, business mentors besides technical and design experts. GenNext Hub provides an option for start-ups to take investments during the early part of the programme and conducts funding workshops for start-ups with prominent investors. The fund would now need to look for investments beyond these early start-ups to deploy it in the given timeline of five years.

“There is a lot of disruption going on in business models, and companies are going through digitisation themselves. So, there is a deep need for them to be engaging with start-ups,” says Ravi Narayan, global director, Microsoft Accelerator. Such proprietary funds are looking at disruptive companies that are beginning to address these kinds of problems in a large way. Providing them capital is one way to do so. “We will have to see how much of this can be put to work and how many start-ups are actually able to leverage capital resources of corporates. But it is a healthy trend, which shows people are willing to bet on Indian start-ups,” says Narayan.

Indian conglomerates are not unique as global behemoth General Electric started its VC fund in 2013, with an ambition to invest $150 million annually in start-ups across health care, energy, software and advance manufacturing sectors. Similarly, oil giant British Petroleum has invested $230 million since 2007 to tap new technologies, business models and geographies.

This is separate from from the funds from technology giants such as Cisco Investments, IBM Venture Capital Group, Intel Capital, Qualcomm Ventures, Siemens Venture Capital, Nokia Growth Partners.

“Proprietary fund programmes that have been launched globally by tech giants and conglomerates, primarily have objectives of linkage back to their own respective core businesses,” says Bharat Banka, founder FideliMent Ventures. In his earlier role, Banka was founder and chief executive officer (CEO) of Aditya Birla PE, a part of the Aditya Birla Group. This was a third-party fund, where the money was raised from outside and not provided from proprietary books of the conglomerate, though it was a sponsor. “For Jio, linkage-back would likely be in the space of mobile apps which is unlikely to absorb such a large amount of corpus. Such large corpus can probably be deployed by investing in more mature and scaled-up start-ups or larger start-ups that may not have very strong linkage back to Jio,” says Banka.

Automotive giant Mahindra & Mahindra, which tied up with mobile based ride-hailing service provider Ola this month, has a proprietary fund worth $750 million. Started in 2008 to foray into new group initiatives as well as to scale up existing businesses, Mahindra Partners is now equally focused on making financial investments in digital-start-ups. Parag Shah, managing partner at Mahindra Partners, has been witness to digitalisation and the-internet-of-things disrupting every sector and their business models.

“Over and above financial returns, we see our investments with dual lenses. First as an ‘ice-breaker’ for our core businesses — the start-ups give them access to future technologies, and they get access to our ecosystem in return,” says Shah. “Secondly, they also help us identify possible sectors of tomorrow.”