Infosys, Wipro choose Silicon Valley startups over Indian startups

During an average week, executives at two of India’s largest software exporters, Infosys and Wipro, meet dozens of startups in Silicon Valley — the world’s biggest startup hub and home to tech giants such as Google and Facebook.

These executives are starting to quietly acknowledge one fact — India’s startup ecosystem is still at a very nascent stage and finding early-stage firms to invest in or even buy out is proving to be a tricky affair.

A year after setting up corporate venture capital arms and startup funds, India’s largest outsourcing firms are starting to evaluate and back more Valley based startups as opposed to India-based startups.

“I think in the Valley, the ecosystem is much more mature — there is no question about that. There is a lot more quality and quantity available in the Valley — we should not try to debate that,” said Navin Budhiraja, senior vice president at Infosys.

“Having said that, I think the Indian startup ecosystem is really starting to take off,” he added.

Over the past 12 months, barring exceptions such as Bangalore-based startup ANSR Consulting, Indian enterprise startups have found few takers among India’s largest IT services firms.

Wipro’s $100-million venture capital firm, which was set up in 2014 and is being spearheaded by board member and strategy chief Rishad Premji, has so far invested only in US and Valley-based startups.

Till date, the company has picked up minority stakes in five US-based firms — Opera Solutions, Drivestream, Axeda (Wipro’s stake was later acquired by PTC), Valley-based artificial intelligence startup Vicarious and big data startup Talena.

Venu Pemmaraju and Biplab Adhya — who head Wipro Ventures and report to Rishad Premji — are both based in the Valley now. And Wipro currently is in the process of setting up an innovation centre in the Valley to tap into local startups.

At Infosys, the story is similar — most of its large acquisitions and startup investments over the past 12 months have been in the US, barring exceptions such as ANSR Consulting and Israel-based Panaya.

Industry insiders say that India is far from producing world-class enterprise startups that are capable of producing disruptive ideas and solutions for top Fortune 500 companies such as General Electric and Citigroup, who form the bulk of clientele of Indian IT services firms.

“Most of the startups (in India) we see today are probably on the consumer side of things. I have not yet seen enough startups that serve the enterprise, except in areas such as Big Data where we see a lot of activity,” said Budhiraja. “It’s still early days in India. Many of the entrepreneurs are first-time entrepreneurs.”

It’s a point of view others endorse. “The Valley is obviously a broader ecosystem. In India, the ecosystem is getting there, there is a lot of interest around it and (Infosys) being an Indian company will try to leverage that ecosystem as much as possible,” said Abdul Razack, head of platforms at Infosys. Experts such as Vivek Wadhwa, however, feel that Indian IT firms are ignoring local startups at their own peril.

“(Indian IT firms) don’t understand the urgency of the technology threat – Look at the current crop of unicorns. Many of them are going to justify their valuations. They were not taken seriously by Indian IT and other industries as well — until they started making front page news,” said Wadhwa, a fellow at Stanford University’s Arthur and Toni Rembe Rock Center for Corporate Governance.

“The enterprise market is rapidly changing. Maybe these startups aren’t developing mainframe or server-based systems. But those are being eclipsed by mobile technologies — which Indian startups are rapidly mastering. In the next 2-3 years, we will see several Indian startups achieving success in the enterprise. It is stupid for Indian companies to be looking to invest (only) in Silicon Valley startups,” said Wadhwa, who’s also a former technology entrepreneur.

A board member of one of India’s top four IT services company said that Valley-based startups have an edge over Indian startups for several reasons. “First, there is an exceptional ecosystem which nurtures and grows them.

Second, there is additional very large venture capital that is very willing to co-invest. Third, university ecosystem allows them to get the best and the brightest as interns at very low cost. Finally, it enables Indian IT Services enterprises to truly become global,” he said, requesting anonymity as he is not authorised to speak to the media.

 

SOURCE: PTI

 

Ray Wang, founder of Constellation Research, agrees that Indian startups are being undervalued and ignored due to the popular perception that the Silicon Valley operates at a higher velocity in terms of conceptualisation of products and customer traction.

“Rightfully or wrongfully there is a perception that the Valley operates at a higher velocity from concept to product for software. Now if I were working on a biotech software, I’d say Indian startups operate at a higher velocity because of less regulatory hurdles today than in the US or EU,” said Wang.