Temasek switches India focus to software

BENGALURU • The venture capital arm of Temasek Holdings is shifting its focus in India to software makers that service small and medium-sized businesses, as it sees the e-commerce sector becoming "overheated" with funds rushing to invest in unprofitable companies.

Vertex Venture Holdings, a unit of Temasek, is hunting for start-ups making cheap software for the nation's hordes of small businesses that could range from a supply chain app to a payroll processing system, said Mr Ben Mathias, its managing director for India.

In the rush to fund mobile phone-based start-ups that target consumers, investors have "largely ignored" enterprise software, Bengaluru-based Mr Mathias, who was appointed Vertex's first managing director of India last month, said in a telephone interview.

"Hundreds of millions of Indians are getting on the Internet, and with them, tens of millions of Indian enterprises are also getting on the Internet.

"As small and medium enterprises use the mobile Internet more and more to drive their business, they will need to adopt cloud-based enterprise solutions," he said, referring to the model of Internet-based computing where software and data resources are typically shared and accessed on-demand.

Over the next 12 months, Vertex plans to invest between US$5 million (S$7 million) and US$6 million each in three or four Indian companies, and will direct about half of its investments into enterprise software makers in the coming years, Mr Mathias said.

The Indian investments were from Vertex's US$200 million fund that focuses on South-east Asian and Indian companies, according to Mr Mathias. Vertex has received an additional US$600 million from Temasek to invest in United States, Israel, China start-ups in "innovation and technological disruption".

Temasek Holdings has been shaking up its asset mix with a push into biotechnology and consumer companies that stand to benefit from ageing populations and increasing disposable incomes. 

In the fiscal year that ended on March 31, it added stakes including in US pharmaceutical firm, Gilead Sciences, and Indian drugmaker Intas Pharmaceuticals.

India's market for apps offering software as a service is estimated to be worth about US$300 million, of which 60 per cent of the demand comes from small and medium-sized businesses, according to Mr Biswajeet Mahapatra, a Dubai-based research director at Gartner.

That market has been relatively under-penetrated as a lot of small businesses either do not use computers at all or rely on outdated systems that cannot adapt to new trends in technology, he said.

Start-ups that make low-priced, subscription-based software can capture market share as small business clients in India may not be able to afford offerings from larger software companies.

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A version of this article appeared in the print edition of The Straits Times on November 05, 2015, with the headline 'Temasek switches India focus to software'. Print Edition | Subscribe