Is big-tech funding in start-ups really paying off?

Ayushi Kar Mumbai | Updated on February 05, 2021

Satnik Roy, co-founder of an electronics start-up HyperXchange, was a young engineering undergraduate when he approached Microsoft with his start-up idea. “One of the core focuses of our start-up was our work with patents, which sparked interest in Microsoft leadership due to their expertise in this area as well,” says Roy. Still, at university, his start-up, HyperXchange, was incubated with Microsoft and IIM -alcutta in 2016. Five years later, in 2021, HyperXchange, is still at a seed funding stage, having raised their last round in March 2018.

Poor success rate

HyperXchange is just one of the many start-ups that received interest from big technology MNCs such as Google, Microsoft and Qualcomm, generating buzz and excitement from being attached to such names.

However, like Roy, most of the these ventures have not scaled up as expected5-10 years down the line. Between 2010 and 2016, Google and Microsoft had provided small-ticket investments or early-stage incubation to a total of 15 start-ups between them. Of this, only two start-ups have grown beyond series A level or they are deadpooled. That is a success rate of 13.1 per cent.

There are a myriad reasons for MNCs to show interest in Indian start-ups. As Llyod Mathias, an expert angel investor explains: “First, India is a hub for technological talent...with most of these MNC’s backend and R&D services being located in India, which means that companies are more likely to look at investments into start-ups more readily here in India. Second, companies want to know what is happening at the cutting edge of innovation, being done by start-ups and they want to keep tabs on it.”

Mathias believes that large tech companies have a throw-and-go kind of approach since it is not a significant financial decision.

“It is also a light way for the company to influence these start-ups to use that company’s product and technology, ensuring that their technology is firmly embedded in the startup’s product offering should they grow significantly,” he said.

For instance, Qualcomm encourages hardware start-ups to use their Qualcomm chips, or Microsoft offers cloud computing services, Azure, to start-ups incubated by them.

Mumbai Angels, a premier platform in India that focusses on venture investing, enjoys a comparable 14.2 per cent success rate, although having done more small-ticket investments, they have produced 6 successful start-ups that received funding from them at Series A or pre Series A level.

Wrong comparisons

A senior executive at a tech firm believes that these are wrong comparisons to make. “Such small-ticket investments by corporates are mostly through incubator and accelerator programmes that have a completely different purpose…..For instance, Google Accelerator putting 100K here or there... is a pro bono money in some sense, where nobody takes any stake, they just give them that money to figure something out with it. Programmes such as Microsoft Accelerator is a simple accelerator programme where commonly people expect only 1 or 2 of these companies to survive.”

“Corporates are actually doing a good thing by creating these incubator and accelerator programmes by putting a lot of money in these start-ups and helping them get some sort of launchpad. If it doesn’t work that is what the money is for. The intent of most start-ups at such a small stage is to help them incubate their product and gain market access better understanding of business etc,” Executive added.

(The writer is interning with BusinessLine’s Mumbai Bureau)

Published on January 30, 2021

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