The Evolving Role of Corporate Venture Capital in Innovation & Disruption

Wing Commander Anthony Anish (Retd) is the Chief Operating Officer at T-Hub, a premier innovation ecosystem based in Hyderabad, India. In his role, Anish oversees the execution of all programs and initiatives aimed at positioning T-Hub as the foremost hub for innovation and entrepreneurial activities globally. Anish’s multifaceted career spanning the military, government, and private sector underscores his strategic vision and leadership capabilities, making significant contributions to the innovation and startup ecosystem.

As the third-largest startup ecosystem, India is a vibrant hub for innovation, brimming with ambitious young entrepreneurs looking to disrupt the market. The Indian electric mobility market in India is a prime example, as its manufacturing sector alone presents a $178 billion investment opportunity by 2030.

Auto giants like Hyundai Motor understand the value and have taken steps to carve out a major chunk of this emerging market. Their $300 million corporate venture capital (CVC) funding into Ola Electric’s innovative electric scooters was a strategic move that helped them establish a foothold in the market and forge a relationship with a potential future competitor.

CVC is not merely an investment tool, it helps corporates absorb bleeding-edge technology and productise it faster than they otherwise could. Unlike traditional venture capital, which primarily seeks financial returns, CVCs often aim for strategic benefits that align with the corporation’s long-term goals.

CVC arms adapted to the new normal of remote operations, leveraging digital tools to manage investments, conduct due diligence and support portfolio companies

These investments embody a mutually beneficial relationship, where startups receive not just financial backing but also gain access to the corporation’s resources, market knowledge and expertise. Simultaneously, corporates, if strategic with their investments, can reap long-term benefits.

The Beginning & Rise of CVC

CVC gained prominence in India after 2010, propelled by the growing startup ecosystem in major cities, such as Bengaluru, Delhi, and Mumbai. This was further fuelled by supportive government initiatives, such as Startup India and Make in India. Realizing the potential for innovation beyond their traditional research and development departments, several major corporations established dedicated CVC units.

The key focus of CVCs was on early-stage startups, particularly in the technology, telecommunications, and e-commerce sectors. These investments were strategically aligned with the parent company’s goals, aiming to enhance core business capabilities and explore new revenue streams.

For example, Reliance Industries launched JioGenNext to invest in promising mobile internet and digital services ventures. Similarly, Infosys launched a $500 million Innovation Fund to invest in AI, automation and other advanced technologies that could enhance its core business offerings, with early investments in WHOOP and CloudEndure.

The Resilience & Strategic Shifts during COVID-19

The pandemic ushered in a period of uncertainty that impacted the global economy. However, unlike previous crises like the dot-com bubble of 2000 or the 2008 global financial crisis, which stifled CVC activity, India's CVC landscape displayed surprising resilience.

Corporations recognise the long-term value of maintaining their investment activities even during economic uncertainties. Notably, there was a shift towards sectors that became critical during the pandemic, such as healthcare, edtech, and digital services, driven by the increased demand for solutions to pandemic-induced challenges.

CVC arms adapted to the new normal of remote operations, leveraging digital tools to manage investments, conduct due diligence and support portfolio companies. The period highlighted the strategic importance of CVC as corporations sought to invest in startups that could provide resilience and innovation in the face of global disruptions. For example, Maruti Suzuki India strategically invested in a Noida-based SmartKar, a company offering contactless car buying solutions, after identifying a shift towards online platforms and contactless transactions during the pandemic.

The Post-Covid Acceleration & Maturity

Post-2021, CVC in India entered a rapid acceleration and maturity phase, marked by significant growth in investment volumes and strategic diversification. Despite a global slowdown in venture capital funding, from $25.7 billion to $9.6 billion over 2022-2023, India remained a key destination for VC and growth funding in Asia-Pacific.

Persistent inflation, high interest rates, and geopolitical uncertainties have brought about the slowdown. Even the deal volume has decreased from 1,611 to 880, and the mega-rounds have plummeted by almost 70 percent. However, smaller deals showcase more resilience, signalling long-term optimism for India’s prospects.

Corporations often partner with startup ecosystem enablers, like T-Hub, O-Hub, Kerala Startup Mission, and other state-led startup ecosystem enablers to help them identify startups across various high-growth sectors, such as fintech, mobility, generative AI, e-commerce, and sustainability. Even traditional sectors with strong fundaments, such as banking and healthcare, are gaining prominence among corporates.

There has also been a rise in industry-specific CVC units. Corporations acknowledge the value of deep industry knowledge during startups evaluation within their specific domain. This focus fosters a more targeted investment approach, wherein corporations tailor their support for startups that can address specific industry challenges.

Tata Motors exemplifies this trend with the launch of Tata Motors Mobility, a dedicated CVC unit that focuses on investing in startups developing innovative electric vehicles and mobility solutions. The unit aligns with Tata Motors' strategic vision for a sustainable future.

Overall, the evolution of CVC in India reflects a broader global trend of increasing corporate engagement in a maturing startup ecosystem. With continued support from the private and public sectors, CVC is poised to play a crucial role in fostering innovation and driving economic growth in India.