Mahindra drives into startup space; to help aspiring employee entrepreneurs.
Mumbai | Red Newswire | By ET Bureau | 19 Nov 2015 11.42 AM IST.
Auto to defence conglomerate Mahindra Group is joining the startup bandwagon by helping aspiring entrepreneurs among its employees build startups in-house with seed funding and incubation facilities.
“It is a very natural step for us to take on the task of incubating new-age startups within our sectors and possibly in entirely new areas as well,” said Anand Mahindra, the group chairman who, along with an investment committee, is busy pouring over a dozen applications received in the past several months.
“And happily, there is growing support in business academia for this notion that a ‘corporate garage’ may well be an ideal host environment for startups,” he told ET.
Having launched its first startup, SmartShift, a mobile app that enables cargo owners to connect with transporters for intra-city logistics, Mahindra Group is all set to start two more startups in the farm and car services space. Anish Shah, group president for strategy, said the $16.9-billion conglomerate looks to incubate 10-15 startups within the next one year.
“What we feel is that the new innovation could come from what we call corporate garages,” said Shah, who joined the group last year from GE Capital. “If we can combine the pluses of passion and speed of startups with the wisdom of corporates it will be a powerful combination.” Mahindra is primarily interested in funding startups in the digital, ecommerce and analytics space apart from ones that can add value to its existing businesses in automotive, farm products, holidays, real estate and information technology, he said.
Some employees of the group who are keen to turn entrepreneurs may have to resign as part of owning the startup company that will be funded by the group. India is in the middle of a startup boom with the success of a number of new-gen firms such as Flipkart,Snapdeal, Ola and InMobi prompting hundreds of young graduates and professionals to start their own business, helped by increasing interest of international venture funds in the country’s technology startups. Venture capital investors pumped in a record $4 billion, or about Rs 26,000 crore, in Indian startups between January and September.
Indian conglomerates and high net-worth individuals, too, have joined the bandwagon to cash out of the digital economy.
Reliance Industries and diversified Aditya Birla Group have acceleration programmes that aim to gain access to new ideas, talent and technology. RPG Group has set up a venture capital fund to invest in startups, while JSW Group has floated a Rs 100-crore fund to invest in startups. “Economy is moving fast and you got to be nimble. There are going to be new ideas that create value, that will threaten our and others’ existing businesses,” said Mahindra’s Shah. “We want to play in the startup space by creating a startup ecosystem that allows us to leverage our strengths and create value for entrepreneurs and our shareholders.”
Shah said the difference now from the group’s earlier approach is to be truly hands off. The group is on a lookout for office space to open a startup incubator to house these startups.
The plan is to initially provide a series of seed funding, which is typically less than $1 million each, to startups and later seek funds from outside investors to scale up the business. Mahindra may consider exiting some startups and remain shareholders in others, Shah said.
Bharat Banka, founder and former CEO of Aditya Birla Private Equity, said, “This strategy makes Mahindra’s startup ecosystem an experimental lab against just being an incubator as its whole operations available to aspiring entrepreneurs to test their ideas.” Banka, who now advises corporates and fund houses, besides being an active mentor and investor in startups, added, “It’s also a smart way to retain talent, which otherwise might leave to start up on their own.” Shah said Mahindra Group is aware that building a self-sustaining startup ecosystem is not an easy task and would let unsuccessful startups fail. “The risk involved is that we are putting a lot of capital and may not get the expected returns. But we are going to learn about new technologies, newer ways of doing business and what works and what does not,” he said.
The group will stay away from throwing money at startup companies just to ‘buy’ customers, Shah added.