Infosys, Wipro look to redefine corporate venture arms

Bengaluru: Nike Inc.’s October announcement of a partnership with DreamWorks Animation-backed Nova to tap 3D technology to change the way it designs its athletic gear, was cheered in the Bengaluru office of Infosys Ltd.

The Indian software services firm invested $15 million in Nova earlier this year, its first investment from a $500 million innovation fund created to back start-ups focused on disruptive technologies.

The Nike-Nova deal opened up a new revenue stream for Infosys, which had previously done just some back-end technology work for the world’s largest sporting goods company.

It was also reinforcement of the strategies adopted by Infosys’s first non-founder chief executive Vishal Sikka and Rishad Premji, who is overseeing rival Wipro Ltd’s $100-million venture arm.

Sikka and Premji’s efforts need to be seen in the context of start-ups focused on disruptive technologies posing the biggest existential threat India’s $146 billion information technology industry has faced.

The venture arms of both IT firms are looking to maximize the number of so-called start-up engagements with clients (such as the Nova-Nike partnership) in the coming 18-24 months, and will use the metric to define the success of an investment in a start-up. This contrasts with the approach followed by independent venture capital firms that measure investment success by the number of exits.

Infosys and Wipro are following the approach used by two of the world’s most successful corporate venture arms run by technology firms Qualcomm Inc. and Intel Corp., which look at start-ups as a “strategic tool” for their own business longevity.

“These investments should not be looked from the traditional measure of a VC (venture capital) firm, which looks at exits as a successful measure,” said a Wipro executive who asked not to be named as he is not authorized to speak publicly on the subject. “The underlying measure is the number of client engagements we can have. Though it is very early to talk about timelines, the consensus view here is that every investment should be looked at with a 2-3 year time horizon.”

That’s a good way for companies such as Infosys and Wipro to measure the success of their venture arms, said an expert. “You can call it a new approach, the way Vishal and Rishad are looking at corporate venture arms,” said Ray Wang, founder of Constellation Research, a technology research and advisory firm. “Software (product) companies have traditionally had investment funds but IT services less so.” According to Wang, the success of such venture arms will be measured by the time it takes the IT services firm to launch new services or get “returns from new markets”.

A three-to-five year period is a good time-frame to measure progress, he said.

The 350,000 engineers at Infosys and Wipro maintain technology infrastructure at some of the world’s largest companies from Apple to Citibank, and also write software essential to run business operations. Together, Infosys and Wipro generated about $16 billion in revenue for the year ended 31 March.

However, with the advent of cloud computing and start-ups focused on new-age technologies, including artificial intelligence, the traditional model of Indian IT firms has come under pressure, making some of these firms partner and invest in start-ups focused on newer technologies.

Access to talent is another measure of a success of a corporate venture arm, said a second expert.

“I always tell new corporate venture leaders that even though their performance should ideally be measured over a multi-year period, they still need to ensure they have at least a couple of (client and talent) ‘wins’ within 18 months to two years,” said Robert C. Wolcott, professor of innovation at Northwestern University’s Kellogg School of Management. “Instead, what demonstrable business value can your team bring is at least a few key business leaders within the parent company within the first two years, so you have a fighting chance to stay the course over the longer term to show real value.”

Wipro Ventures is jointly managed by Venu Pemmaraju, formerly a senior investment manager at Intel Capital, and Wipro executive Biplab Adhya, and until now has taken minority stakes in four US-based start-ups.

Infosys, which at the start of the year expanded its Infosys Innovation Fund by five times to $500 million, and later tasked Yusuf Bashir, Sikka’s former colleague at SAP SE, to oversee the fund, has so far spent $25.4 million to buy stakes in five start-ups and invested an undisclosed amount in September to become a limited partner in Vertex Ventures, a Palo Alto-based venture capital firm. Both Wipro and Infosys are coy about sharing the number of client engagements they have gained because of their corporate venture arms.

“It is way too early to talk about client engagements we have got from some of these startups as some of them are in stealth mode,” said Ritika Suri, who is currently heading the merger and acquisitions team at Infosys. Bashir reports to Suri.

Infosys and Wipro declined to offer comments for this story.

Infosys and Wipro are also reworking the compensation structure of sales executives, encouraging them with incentives to pitch new technologies (from start-ups the companies have relationships with) to clients.

“How do we, say, sell the technology offering of Opera Solutions (a data analytics start-up) to more number of clients? Only sales people can sell this technology to our client. And so we will soon have a structure where as part of variable pay, a sales executive is rewarded more for selling these new technologies,” said the Wipro executive.