Infosys, TCS, Cognizant, Wipro and MindTree among IT giants snapping up startups for innovation

BANGALORE: The hunt for the next growth driver brought top IT companies - Infosys, Tata Consultancy Services, Cognizant, Wipro and MindTree - to a Nasscom matchmaking event last week, where they were serenaded by about a dozen technology startups hoping to be bought by one of them.


The event, the first of its kind in India, signals a growing trend of large IT companies based out of India turning to startups for innovative ideas and technologies. It also gave the young ventures a chance to sell their ideas to the bigger firms, which are otherwise not easy to approach.

"We are looking for partnerships as well as mergers and acquisitions with startups," said Srinivas Seshadri, an associate vice-president at Infosys, which in April set up a Rs 593-crore fund to back innovation.

Seshadri, who sold his startup Injoos to former Wipro chief executive officer Vivek Paul in 2010 before joining Infosys, is now scouting for cloud computing and enterprise mobility companies.

For their part, tech startups were upbeat about the four-hour session. "It's tough to reach large companies directly," said Manjunath Gowda, chief executive of enterprise software solutions maker i7Networks. The 43-year-old entrepreneur is in talks with all five IT companies.

This growing tango between outsourcing giants and startups is driven by mutual need.

Little choice for Indian IT giants

"There is no choice left for Indian IT companies but to look at product innovation through startups," said Praveen Bhadada, a director at consultancy Zinnov. "To come out of the traditional IT services model, they have to look for ideas outside."

For instance, Infosys has developed a few technology products - including its banking software Finacle - that currently account for about 7% of overall revenues. On the other hand, cross-town rival Wipro has taken the acquisition route. In May, the company paid around Rs 177 crore for a minority stake in data analytics provider Opera Solutions. It also bought a stake in Axeda, a wireless technology company, for Rs 29 crore.

Ravi Gururaj, chairman of the Nasscom Product Council, is of the view that over time engagements that begin as partnerships and strategic investments can lead to mergers and acquisitions.

Indian technology startups have struggled for want of a thriving ecosystem for mergers and acquisitions. Unlike in the Silicon Valley - where Cisco, Google and Microsoft are active buyers of young companies - Indian technology services leaders have been unwilling to loosen their purse strings. As a result, exit options have been few and far between.

Last year, there were 21 exits worth Rs 1,265 crore, according to research firm Venture Intelligence. However, none was led by a top Indian IT services company.

That could now change. Following last week's event, Wipro and Cognizant are both talking to startups, such as Bangalore-based DataWeave, which provides data analytics for e-commerce ventures. "We are looking at startups that can augment our offerings in all emerging areas, such as infrastructure management, automation, big data and cloud," said GS Nathan, who heads innovation at Wipro.