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VCs help spin-offs from large firms gain traction
By siliconindia
Mumbai: Online classifieds firm Quikr India, which existed for two-and-a-half years as a two-member team within online marketplace eBay, namely Kijiji India, last month opened its site to the public after spending months in testing and building an extensive information database and a new front-end.
Such a huge transformation was possible because of the VC funding in the company. In February, it received from funding from venture capital firm Matrix Partners India and transformed from a tiny division in a large company to an independent company. Matrix Partners' managing director Avnish Bajaj, was co-founder of Baazee.com, which was bought out by eBay in June 2004.
Jiby Thomas, Quikr's VP, marketing, says, "what gave us the ability to localize the product much more and go to market faster than before was the February spin-off. In some ways, it is a win-win situation for a start-up of this kind as it gets to begin with not just a business plan, but the backing of a large corporate parent and VC money in the bank."
Last year has seen at least four such companies spinning off from big companies and funded by VCs in India. Now, they are expanding management teams, adding new customers and operating independently. ConnectM Technology Solutions, born out of Bangalore-based telecom product company Sasken Communication Technologies has grown from four people at the time of spin-off to 62 now, and has created seven applications in machine-to-machine communication for use in industries such as transportation, construction and energy.
While such spin-offs are not uncommon in the U.S. and Europe, it is only in the current VC upturn that the idea has gained traction in India. The biggest driver for a corporate to turn an internal business division into a standalone firm is a large enough market opportunity in a sector different from its core business. "The gestation period may be longer, but you have to assume a large significant marketplace two-three years from now, and by involving a VC, you share that risk," says Rajiv Mody, chairman and chief executive, Sasken, of the decision to spin off ConnectM with support from IDG Ventures.
In some cases, such spin off also targets geographical markets. The Indian and South Asian subsidiaries of interactive media company Cellcast was spun off into Cellcast Asia Holdings in an attempt to replicate the British parent's business model locally, with added capital of $5.25 million from Canaan Partners.
