Cisco Systems Inc. is looking to partner with more Indian start-up companies to enhance its portfolio of software offerings, as the world’s largest maker of routers and switches faces stiff competition in the networking gear market.
Cisco has already invested in 25 start-up companies in India over the last several years using an investment pool of $240 million. In October, it made its first acquisition in India, buying Pawaa Software, a Bengaluru-based start-up which provides cloud-based secure file-sharing service, for an undisclosed amount.
The networking technology company wants to invest or acquire Indian start-up companies that specialize in network security, mobile technologies, cloud computing software and so-called Internet of things (IoT), which refers to generating computing and communication powers to everyday items.
More than half of Cisco’s revenue comes from switching and routing business. Like all other hardware companies, Cisco is also going through a transition—shifting from low-margin enterprise network hardware such as switches and routers to high-margin cloud software and services.
“We think there are a lot of innovations coming from India in IoT, managed services and cloud,” said Dinesh Malkani, the president for Cisco, India and South Asia. “We are actively looking for organizations that just add value. What is important is we get the right technology, right company and people,” he said.
In an interview, Malkani spoke about the company’s interest in Indian start-up companies, investment thesis and challenges from low-priced competitors. Edited excerpts:
Why do you find India’s start-up ecosystem exciting?
We want to be a technology provider to start-ups in the first place. At the same time, we would like to innovate together with them to go to market. We will help them provide services, by providing cloud solutions, security which is very critical, and help them collaborate with their customers.
What are the areas that you are focusing on when tying up with start-ups?
We think there are a lot of innovations coming from India in IoT, managed services and cloud sector. We have created a specific fund to make investments in those sectors in India. There is a $240 million fund we can tap into. We have done 25 investments so far and are actively looking at increasing that number.
How do you work with these companies?
We do investments in companies that add value to our portfolio. We help them hit the market and sell their products and services along with us. We also mentor them and give them global exposure. Last year, we took a lot of the Indian start-ups that we invested in to our office in the US. They had access to and conversations with our customers.
Is there a dearth of network security start-ups in India?
We do see a lot of start-ups entering that market in India. Network security is a growing area. The future trend is around digitization. And when there is digital disruption, companies like Cisco play a key role, which also means that the areas we participate are growing. That gives the confidence to start-ups to bet on something which is not just a short-term blip, but a long-term strategy that most companies are adopting.
Do you prefer acquisitions over investments in India?
It depends on what stage the company we are talking to is. If they are at a stage where they have developed some technology and need the investment to reach-out to customers, an investment strategy may work well. An acquisition strategy works when technology is proven disruptive in nature and the management team is willing to get integrated to a larger organisation.
Do you see network gear makers like you facing challenges from low-priced competitors in India?
Not really. Customers are looking at end-to-end software solutions architecture. That’s where our strength is. It’s not really about a particular box being cheaper than the other. It is about putting the whole architecture together and then layering that with the right kind of services that can be offered to deliver that.