Mindtree may spin off two company-incubated start-ups

The idea is to support those who may want to be entrepreneurs

 

Two entrepreneurial ventures, started in and incubated at Mindtree Ltd., are now not only catering to over 10 clients each and making revenues for the mid-sized software services exporter but also on the brink of being viable market-ready products.

 

Mindtree will, in the “coming three to six months”, consider opening up, spinning them as independent ventures and getting aboard external investors for the two promising projects that are currently in the field deployment stage.

 

The company has so far invested $4-5 million in the two ventures — one cloud management and security offering called VMUnify and a digital surveillance and video analytics product.

 

Tech event

These projects have been incubated in the products and platforms vertical, under a programme called ‘5 by 50’.

 

“The idea is that the company supports any idea that we think can be a $50 million dollar business in five years,’’ according to Janakiraman S, CTO at Mindtree, who was speaking on the sidelines of the company’s annual tech event Osmosis.

 

The second phase of ‘5 by 50’ is now on, with Mindtree choosing three of 260-odd entries.

“The idea was to support those in our company who may want to be entrepreneurs and create business opportunity but want to minimise risk,” Mr. Janakiraman said.

 

Mr. Janakiraman believes that projects like these will help differentiate Mindtree, a company that is “nimble and agile enough to take risks”, and that this will pay off well in the long-term.

“Mindtree has been growing organically in a very linear way. That is the nature of services—here we are trying to break away from it and create non-linearity, which needs the company to take risks. We feel we have reached a level of maturity to be able to take such risks.”

Smaat India: providing safe and affordable water solutions

Even as a child, Karunakara M Reddy understood the travails of rural India in getting safe drinking water.

 

He would see womenfolk in his village in Andhra Pradesh’s Mehbubnagar district trudge miles to fetch a pot of drinking water.

 

He also saw how people in his village frequently fell ill because of water-borne diseases.

He knew then that availability of safe drinking water would be a major problem in India for decades to come.

 

Biz opportunity

Many years later, in 1998, armed with an MBA and in his first job, he realised how drinking water offered a business opportunity.

 

Reddy, who had joined a soft-drink MNC in Hyderabad, had been asked to help launch the company’s first mineral-water plant.

 

That same year, the 23-year-old executive quit the job, which was paying him about ₹60,000 a month.

 

With an investment of ₹37,000, he set up an office to provide safe drinking water at an affordable price. “We started off with importing and later assembling water purifying units, which then cost ₹27,000 each. We sold 27 units in the first six months and ended the first year with ₹6 lakh revenue,” he recalls.

 

Today, the company, Smaat India, has annual sales of ₹120 crore, with about 900 employees and a factory that produces 300 water purifying units a month.

“For me, it is not business alone. Somehow the urge to provide safe and affordable drinking water to rural India has been there in me from my childhood,” the 39-year-old Chairman and Managing Director says.

 

Smaat sells water solutions to 33 countries, covering 18 innovative technologies developed in-house.

“These include reverse osmosis, ozone filtration, solar ozone evaporation and demineralisation.

“The objective of the innovation is to reduce filtration cost to ensure safe drinking water at affordable costs,” he says.

 

Innovative products

One of its innovative products is a mobile treatment unit to provide drinking water to the masses during floods or natural calamities.

The ₹1.3-crore unit is mounted on a specially designed truck that can be moved around to deliver 2,000 litres per hour.

“What is unique is that it packs the water in small pouches automatically. It can produce 5,000 pouches an hour.

“The pouches come out seamlessly. These units are doing well in West Bengal and Jharkhand,” says Reddy.

Govt plans billion-dollar fund to seed desi tech firms

 If the Government has its way, the next Apple or Ericsson could be from India. In a bid to encourage local technology in the manufacture of telecom equipment and devices, the National Manufacturing Competitiveness Council (NMCC) has floated a plan to set up a venture capital fund with a billion-dollar war chest.

 

It proposes to rope in prominent Indian venture capitalists such as Vinod Khosla, Sam Pitroda and Gururaj Deshpande to be part of the investment committee of the fund.

 

“The fund will invite proposals in a transparent manner and select a few consortia, pre-dominantly comprising Indian-origin scientists and technologists. The full cost of the start-ups, from conception to proof of concept and then manufacturing, will be met through equity infusion,” stated the NMCC note, which is now under the consideration of the Department of Telecom.

 

According to the NMCC proposal, the fund will provide 85 per cent of the equity without management control and the remaining 15 per cent can be provided by the selected entrepreneurs in the form of sweat equity. The promoter of the company will have full control of management, subject to a review by the expert committee.

 

In case the start-up does not succeed in the venture, the money given will be written off. But if the venture becomes commercially viable then the proposed fund will maintain an equity holding above 51 per cent to prevent any foreign entity from gaining control over the firm. “The fund will look at breakthrough technology, and not return on capital, as a measure of success,” the note, seen by Business Line, said.

 

The move has been initiated in a bid to make India a global technology manufacturing hub. Despite being a major consumer of telecom network and device products, almost all of its requirements are imported at present.

 

Though the Government has brought in several policies to encourage local manufacturing, including the preferential market access policy, not much investment has come in till now. The mobile devices segment has seen some investments by the likes of Nokia and Motorola but this has also declined in the last one year.

 

DoT officials, however, said that while the NMCC proposal is right in intent, it has to be seen whether it overlaps with other schemes being implemented.

IIM-A study suggests 'brick and click' model for retail growth

With the growing real estate prices hampering the penetration of large format retailing, a study at the Indian Institute of Management, Ahmedabad (IIM-A) suggests a combination of online and kirana (mom-and-pop) stores.

Terming it as 'brick and click' model, the study suggests retailers should innovate to increase business by going in for a combination of e-commerce and small brick-and-mortar stores.

Titled 'Online Retailing Paired with Kirana - A Formidable Combination for emerging Markets', the study has been authored by IIM-A faculty member Prof. Piyush Sinha, along with Prof. Srikant Gokhale and Saurabh Rawal.

The study argues that there are four factors that advocate a combined model of e-commerce and small kirana stores including rapid penetration of technology, growing consumer preferences, growing adoption of online medium by stores and brands and growing real estate prices.

The study highlights several hurdles that the organised retailing needs to overcome, such as rise real estate prices, lack of viable store locations, overhead costs, pilferage, lack of trained manpower and many more. On the other hand internet retailing is accessible even through a smartphone, saves time and fuel for the consumers and demands no expensive real estate investment for expansion.

"The growth story will be that such a growth will not remain confined to the urban centers of any nation but will rather spread more rapidly in the rural areas, where both organized retail have found difficulty in serving this base of the pyramid.

The inability of organized retail to make a strong presence in these countries will be tapped by the growing number of internet users who will largely prefer to either shop through the internet and or shop from nearby traditional store.

A firm with an omni retail strategy that merges the two formats may prove to be formidable in service a diverse and large country like India and China," the study states.

Quoting a Mckinsey report, the study estimates that the number of internet users in India will rise to 370 million, surpassing all developed countries by 2015.

Moreover, admitting that a majority of the Indian population is not very savvy when it comes to buying from the internet., the study states that e-commerce companies have acknowledged this hurdle and therefore are innovating business models to suit the needs of the typical India consumer.

For instance, discount and other promotional offers are strongly believed to have led customers from the physical stores to virtual stores.

The study also gives examples retailers like Big Bazaar, Shoppers Stop and Tata's Croma to suggest that brick and mortar retailers are identifying the opportunities offered by electronic commerce in India.

Further, the study attributes steep rise in real estate prices as the reason for retailers being discouraged from opening more and more stores.

As per the study, real estate costs comprise upto 10, and sometime more, of sales in India and this same component is about 3-4% in the case of the developed economies.

"In 2012, the store based retailing contributed to about Rs. 20,000 billion whereas non-store retailers stood at about 175 billion. This signifies a growth of 74% in store-based and 223% growth in non-store between 2007 and 2012. There are more than 14 million physical stores, of which 12 million alone are small grocery outlets. The smaller stores are also very high value formats. The ubiquitous Kirana store provided adequate merchandise mix, home delivery credit and personalised services. Consumers do not find the prices very high as they sell at the price printed on the pack and do not give discounts unless offered by the manufacturers. Their merchandise mix is also localised, especially with regard to food and edible products," it states.

Meanwhile, the study also argues the difficulty in funding as one of the reason for opting for a combination of e-commerce and small mom-and-pop store.

"More than 50 e-commerce companies having received over $700 million in funding since 2010 establishing that e-commerce happens to be one of the most sought after investment sectors in the industry today. On the other hand the physical retailers are finding it difficult to raise money. Only large corporations find it a little easy," the study states.