Five reason why this is the best time to create a corporate venture capital fund

CVC firms have been at a nascent stage in India until now as they majorly focused on long-term strategic goals and immediate financial returns and gave nominal freedom to the startups. The emergence of tech-driven startups has encouraged the corporate venture capital (CVC) groups to steadily invest in new technologies, innovative products, and solutions that are compatible with their existing operations. According to the CB Insights report, the number of new CVCs rebounded in 2021 after a 6-year low of 144 in 2020 to 221, which was a whopping 53% growth on 2020 data. Since the ecosystem is currently facing the funding winter, it’s imperative to understand that the cyclical event won’t affect the tech-savvy startups and unicorns with great ideas, and real business models as technology always wins such a slowdown. 

Here are the five reasons why this is the best time to create a corporate venture capital fund:

Indian government support

The government has launched a series of initiatives, funds, and policies to encourage entrepreneurs for generating jobs and innovations to support the startup ecosystem and SMEs. This includes providing financial assistance, technical support, subsidies, business development, growth, product innovation, research, and development, legal support, tax exemptions, grants, a simple criterion for public procurement and credit guarantee schemes, etc. The government has also set up 31 innovation centers, 15 startup centers, 15 technology business incubators, seven research parks, and 500 tinkering labs. The government recently funded the world’s largest innovation campus T-hub 2.0 in Hyderabad; which plans to foster as many as 20,000 start-ups in shaping sustainable business models and scaling up their operations. By the virtue of this, India is set to become an entrepreneurial powerhouse and bring economic prosperity.

Improved quality of entrepreneurs

Earlier the main motive of entrepreneurs was to open a business and make profits but in recent times, we have seen an escalation in the startups that are committed to social impact and solving a real problem. 

For early-stage startups, CVCs provide invaluable decades of experience in operating businesses, corporate knowledge, R&D resources, M&A possibilities, and a wide network. Since the entrepreneurs are now purpose-driven, tech-savvy, customer-centric, highly adaptive, and flexible; they have bridged the technological gap and expanded in diverse industries across India and overseas. A CVC fund can maintain consistency in creating wealth, innovation, and value in both businesses; making India a hub of globally relevant products and services. As global expansion creates powerful international brand recognition and improved sales, it makes a win-win situation for corporate venture capital firms to create funds to bet on such startups.

Investor development beyond metropolitan

The onset of the pandemic has accelerated digitisation across India, and with growing internet penetration, almost 50% of internet users are from beyond metropolitan cities. Nearly 40% of the recognised startups are from Tier 2 and 3 cities including Ahmedabad, Lucknow, Jaipur, Indore, Kochi, and small cities in India. Increased availability of all kinds of educational information about investments and startups on several digital modes, especially social media has led to awareness amongst the general public across India and growing investor maturity. A substantial portion of small city investors started to diversify their investments to more contemporary or alternative financial asset classes from traditional savings avenues. Several industry bodies including NASSCOM, ASSOCHAM, TIE-Con, etc have also provided financial assistance, knowledge, incubation and network opportunities to support path-breaking ideas from the small cities of India.

Improved participation of foreign investors.

Modern startups have created products adopted by a global customer base, resulting in high-value firms with powerful revenue streams. Several nations have found India a lucrative market for investment due to its domestic market. Despite the Russian-Ukraine conflict, pandemic and rising inflation, there has been a growth in foreign investments, especially in IT, Pharma, FMCG, financial services, etc. With $ 83.57 billion in 2020-21, the FDI inflow in India was at its highest and is expected to reach $100 billion in 2022-23 as per industry chamber PHDCCI. This is mainly due to the favorable business landscape of India and supportive government policies and reforms across sectors including coal Mining, contract manufacturing, IT, Digital Media, computer software and hardware, medical devices, power exchanges, retail trading, civil aviation, defense, insurance, automobile and telecom among orders. The government reviews and modifies the FDI policy often and keeps it liberal and transparent so that India remains an attractive and investor-friendly destination.

Digital economy

With the government’s digital India program, tech-enabled startups, increased incomes, and internet penetration, India’s digital economy is expected to grow exponentially with $800 billion by 2030 registering a ~10x growth from 2020. As per a survey by McKinsey, the digital economy will unlock productivity and create 60 to 65 million jobs by 2025. Among the 17 top economies of the world, India ranks as the second-fastest digitizing economy. The robust foundation of digital infrastructure and augmentation of digital access across India will lead to tremendous economic growth as the integration of revolutionary technologies such as data pooling, machine learning, cloud computing, blockchain, web3.0, artificial intelligence, etc has led to seamless operations, tracking, and solving real problems in wide range of sectors such as agriculture, medical, environment, logistics, e-commerce, and finance markets among others

Along with angel investors and VCs, corporate venture capital (CVC) firms also play an influential role in funding early-stage startups. With the funding capital and expertise of modern startups, CVC firms can acquire a competitive advantage, access to revolutionary technologies, and innovative companies.

END OF ARTICLE