Skip to main content

Are spin-outs the way to go?

The following article, by N. Sriram, originally appeared in the latest quarterly India VC Report

On May 4, 2006, when all commercial activity in Bangalore came to a standstill thanks to a general strike (“bandh”), Rajiv Mody, Chairman and CEO of Sasken Communication, and Sudhir Sethi, Managing Partner of IDG Ventures India, met to discuss an innovative idea: is it possible to spot product areas where Sasken was not adequately realizing the potential and spin them out into a separate corporate entity?

Over the next six months, after considerable research and several meetings later, five areas were identified as worthy of spinning off from the Bangalore-based provider of embedded communications technology solutions. After some more filtering, machine-to-machine (M2M) communication emerged as the top contender segment that Sasken should spin out. Between November 2006 and April 2007, the business plan was firmed up, potential customers and markets were identified. The next step was to pick advisors, employees and, of course, the CEO.

In June 2007, Sasken and IDG announced that they were together investing $6 million in the new entity christened ConnectM Technology Solutions. Kumar Prabhas, a senior executive at Sasken, was named ConnectM’s CEO.

In a sense, ConnectM has been given everything it needs to succeed on a platter. Even a potential exit strategy for the VC - since Sasken has reserved the right to fold ConnectM into itself.

Spin-outs like this indeed seem to be a convenient solution for a key problem facing VCs in India: how to put larger sums of money to work in a situation where the average start-up requires far less than the $5 million or more that their fund sizes dictate they deploy per deal.

There however seems to be one key problem: in a spin-out situation, who exactly is the entrepreneur - with “fire-in-the-belly” and all that – who is supposed to be the heart of any successful startup?

Sudhir Sethi of IDG counters this, saying that a senior executive, when made a CEO, realizes the opportunity to create a large company and works as aggressively as an entrepreneur. In ConnectM’s case, Prabhas was picked as the CEO after short-listing candidates from outside Sasken as well.

Sethi also suggests that the issue be looked at from a different angle: how should a medium size company grow? And points out that the spin-out route provides an alternative, without the company losing market leadership. "Also, the time taken to complete the quality cycle will be reduced", he says pointing out that ConnectM, within three months of inception, has completed the execution of a project precisely because it hit the ground running.

Explains Prabhas, ConnectM’s CEO, "The rationale was to explore verticals outside of telecom, while still leveraging the communication expertise, global reach and mature policy and processes of Sasken. All ConnectM offerings are new, as they address vertical markets that Sasken never addressed."

ConnectM’s progress will indeed be interesting to watch.

What do you think about the opportunity to do spin-outs in India? Do send us your views at

Popular posts from this blog

VC Interview: Shailendra Singh of Sequoia Capital India

In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry. Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back? Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms

ChrysCapital, Motilal Oswal PE & Sequoia named PE-VC Firms of the Decade

Press Release ChrysCapital, Motilal Oswal Private Equity and Sequoia Capital India have been named the top Private Equity & Venture Capital investors in India during the last decade, as part of Venture Intelligence’s APEX Awards. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer.  While ChrysCapital won the “Private Equity Investor of the Decade” award, Motilal Oswal Private Equity was feted as India’s “Growth Capital Investor of the Decade”. The Indian arm of the storied Silicon Valley VC firm, Sequoia Capital, was named the country’s “Venture Capital Investor of the Decade”. The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria were Exit Track Record, New Fund Raises & Fo

Ambit tops League Table for Transaction Advisors to Private Equity deals in 2019

Ambit Corporate Finance topped the Venture Intelligence League Table for Transaction Advisor to Private Equity Transactions for the year 2019. Ambit advised PE deals worth $2.4 Billion (across 4 qualifying transactions) during the period. Citi ($1.1 Billion across 2 deals) and  Avendus  ($969 million across 12 deals) took the second and third spot. Edelweiss Financial Services ($758 million across 9 deals) and  PwC  ($708 million across 15 deals) completed the top five in 2019.  The  Venture Intelligence League Tables , the first such initiative exclusively tracking transactions involving India-based companies, are based on value of PE and M&A transactions advised by Financial and Legal Advisory firms. Ambit Corporate Finance advised the $1.9 Billion buyout of Pipeline Infrastructure from Reliance Industries   by Brookfield Asset Management  and the IFC and I Squared Capital-backed   Cube Highways' acquisition of Delhi-Agra Toll Road from Reliance Infrastructu

Jio deals help PE investments climb 12% in H1'20 to $18.8 B

Press Release With Reliance Industries' communications unit Jio Platforms attracting 51% of the investment value, Private Equity-Venture Capital (PE-VC) investments in India rose 12% during the first 6 months of 2020 to $18.8 Billion (across 341 deals), shows data from  Venture Intelligence , a research service focused on private company financials, transactions and their valuations. Investments totaling over $9.5 Billion in Jio by a troop of global private equity firms, following social media giant Facebook's $5.7 Billion mid April investment in the company, helped overall PE-VC investments better the $16.8 Billion (across 503 transactions) invested during the same period in 2019. (Note: These figures include Venture Capital investments, but exclude PE investments in Real Estate).   Jio Platforms' $9.5 Billion Private Equity haul (excluding Facebook’s strategic investment) was led by Middle Eastern and American investors with KKR, Saudi Arabia's Public Invest

Inventus, Sixth Sense, Blume & Norwest win Apex'20 Venture Capital Awards

Inventus Capital Partners, Sixth Sense Ventures, Blume Ventures and Norwest Venture Partners were voted the top Venture Capital investors in India during 2019. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer. Other 2019 winners in the VC segment included  Axilor Ventures which was voted   the  Accelerator of the Year for the second year running, 3one4 Capital (VC Fund Raise of the Year) and Innoven Capital (Venture Debt firm of the Year). The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria are Exit Track Record, New Fund Raises & Follow-on Funding Rounds for Portfolio Companies).    " It is an honour to be recognised by entrepreneurs and investors as