The startup universe that Akash and Isha Ambani will now lord over

startup investments

by 5paisa Research Team Last Updated: 2022-07-12T13:22:11+05:30

Over the last couple of weeks, a lot of media real estate has been spent analysing how twins Akash and Isha Ambani will go on to shape the future of Reliance Jio and Reliance Retail, the two fast-growing divisions of the yarn-to-energy-to telecom-to-retail conglomerate Reliance Industries Ltd.

This comes as their father and India’s richest man, billionaire Mukesh Ambani, gets ready to hand over the mantle at Maker Chambers—which houses Reliance’s headquarters in Mumbai—to his offspring.

While the succession plan will become apparent only in the months and years ahead, the two divisions have left an unmistakable imprint on India’s startup universe over the last three years.

Both Reliance Retail and Reliance Jio have acquired or backed more than three dozen startups or smaller companies, across the value chain both in India and abroad.

According to a Morgan Stanley report ‘What Reliance is Buying’, cited by Bloomberg, the group has invested more than $5.6 billion across sectors, led by telecom and digital business at $2.5 billion.

An independent compilation of the information available in public domain shows that until March this year, Reliance had invested just under $2.4 billion in acquiring or expanding startups and other small businesses across domains like telecom and internet, media and education, chemicals and energy, retail and other digital companies.

To be sure, while RIL has acquired quite a few of these companies outright, in most of the others, it has either taken majority stakes or significant minority stakes, which gives its nominees a board presence and a chance to steer those companies in sync with the direction it wants its empire to take.

Tech-based or tech-enabled companies acquired by the behemoth span across domains as wide ranging as artificial intelligence, internet of things, blockchain, online multiplayer gaming, multi-party videoconferencing, augmented reality, virtual reality and mixed reality.

Some of the best-known companies that RIL’s arms have bought over or into over the past few years include entertainment companies Balaji Telefilms, Saavn and Eros; and digital cable companies Hathway and DEN Networks.

In the tech domain, RIL’s various arms have invested or acquired a large number of companies including edtech startups EdCast and Embibe. customer engagement startup Haptik, language processing firm Reverie, online shopping platform Fynd, 5G architecture provider Radsys, robotics startup Addverb, AI solutions provider Asteria Aerospace, SaaS solutions company Nowfloats Technologies, and logistics company Grab.

But there’s more. Over the last few years, Reliance Retail has also acquired majority or significant minority stake in leading fashion labels promoted by fashion designers like Ritu Kumar, Manish Malhotra, Abraham & Thakore and Satya Paul.

So, what really is Reliance’s game plan? And more importantly, is there a method to the seemingly mad scramble for startups and other smaller businesses?

Stepping on the gas

The answer lies in how things unfolded. Between 2010 and 2020, the Indian startup sector saw an unprecedented boom, with venture capital dollars chasing any and every company that could call itself, well, a startup, even if all they were offering were copycat business models that had been tried and tested by a dozen competitors before.

Through this time, Ambani sat on the sidelines. At a time when heavyweights like Tiger Global and Softbank were throwing billions into the game, Ambani and Reliance Industries did not do much except making a few small investments and setting up a low-key mentorship program.

But then, in 2020, at the height of the coronavirus pandemic, when traditional funders turned cautious, Reliance upped its game.

In August 2020, it bought a majority stake in online pharmacy Netmeds, just a month after acquiring a minority stake in lingerie seller Zivame. In November of the same year, it bought a 96% stake in Sequoia Capital and Kalaari Capital-backed online furniture portal Urban Ladder.

To be sure, Reliance had started investing in startups even before the pandemic, backing companies such as ed-tech venture Embibe. But both Reliance Retail and Reliance Jio have been on an incessant buying spree after the pandemic. 

What Ambani wanted were sweet deals, and the pandemic only came as a blessing in disguise.

As the global economy came to a standstill and capital markets crashed in the wake of the pandemic-induced lockdowns, venture capitalists turned cautious and began pulling back, especially from those startups that had never turned a profit and were only surviving on VC money.

A good bargain

Reliance came as a knight in shining armour and began gobbling up companies whose investors were looking for distress exits.

It was a buyer’s market and Ambani got a good bargain. He was able to price the acquisitions on his terms rather than paying top dollar for these companies, like in the US or European markets.

Interestingly, these acquisitions came even as Reliance itself sold stakes worth more than $22.3 billion (Rs 1.65 trillion) in its telecom and retail arms through 2020 and 2021 to 15 global investors. These included the likes of tech giants Facebook, Google, Qualcomm and Intel; private equity behemoths KKR, Silver Lake Partners, Vista Equity Partners, General Atlantic, L Catterton and TPG; and sovereign wealth funds Mubadala and Abu Dhabi Investment Authority of the UAE, Singapore’s GIC and Public Investment Fund of Saudi Arabia.

So, effectively, Ambani’s acquisitions were cost neutral for his group. Still, experts remain divided on whether they make sense from a long-term business perspective.

Some experts feel the acquisitions have been a win-win both for Reliance and the companies that have been bought out. While these startups, which were struggling under a cash crunch, got a new lease of life, Reliance got an easy route to add newer verticals to its product portfolio. Experts say that in the long run, these buys have become an easy way for Reliance to tap into a ready audience that has been loyal to these brands over the past few years.

Having said that, some other experts say that the fact that some of these startups were bought for a fraction of the capital they had managed to raise, should be a cause for worry for the country’s startup ecosystem.

Yet, cheap valuations is just one side of the equation that has made some of these startups and smaller companies attractive to Reliance.

It has paid top money, to get high-quality businesses that add significant value under its umbrella. A case in point is that of Noida-based robotics startup Addverb Technologies, whose technology it plans to use to make e-commerce warehouses and energy production more efficient. In January this year, Reliance paid $132 million, or nearly Rs 983 crore, for a 54% stake in the robotics company. 

The five-year-old startup designs and makes software and installs robotic systems. That makes Addverb one of the few companies in the world to work in every aspect of robotics, from hardware and software to deployment. And that's not all. Addverb has already developed highly automated warehouses for other big companies like Flipkart, Hindustan Unilever, Asian Paints, Coca-Cola, Pepsi, ITC, and Marico.

The acquisition of Addverb, Reliance hopes, will help it compete better against rival Amazon in the e-commerce space. In fact, Addverb already works in dozens of warehouses across Reliance's empire, including online grocery JioMart, fashion retailer Ajio and internet pharmacy Netmeds, wherein it deploys robotic conveyors, semi-automated systems as well as pick-by-voice software.

To be sure, Reliance is not the only conglomerate that has been buying up startups. Other legacy business houses including the Tata Group and Mahindra and Mahindra, too, have been doing the same, with similar objectives. Tata, for instance, has acquired online grocer BigBasket.

And that is where the two Ambani siblings will need to be careful as they take over from their father. While the big and diversified portfolio he has put together for them, is certainly impressive, they will now need to make sure their businesses remain relevant and retain their edge in the wake of cut-throat competition. Else, a whole bunch of them could well end up as white elephants.

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