Tech Mahindra expects to spin-off three of its internal startups in the next 18 months, a move that will shine a much-needed light on the value IT companies derive from investments in employee ideas. For over the last five years, TechM has been building companies internally. Now, three of them are ready to stand on their own feet, a top executive at the company said.

“We want to spin-off at least three of our startups in the next 18 months. We believe they have grown to a point where they can sustain on their own,” Jagdish Mitra, head of strategy and marketing at Tech Mahindra, saidin a recent interview. Mitra also heads the IT company’s Growthfactories initiative, which looks after the startups.

The startups that are deemed ready to be spun-off are the Saral Rozgar job platform, a microgrid-management-as-a-service startup and a startup that is focused on payments. “We are evaluating how to value these companies. Those discussions are still ongoing,” Mitra said.

While other IT companies have spun-off internal startups sporadically, few are focusing on the business at the scale that Tech Mahindra is. TechM has a strategy that will focus on building startups in-house, investing in startups externally and in strategic buyouts of technology companies.

CEO CP Gurnani had said that at least two internal startups would raise funding by the end of this year. Gurnani had added that the Canadian state of Ontario was interested in investing in the microgrid startup, but that no decision had been taken.

Tech Mahindra’s internal startup programme runs in two batches and internal ideas that make the cut are mentored in-house for about 18 months to see if the idea has traction and can scale.

The startup CEO is given a term sheet where his stake and Tech Mahindra’s stake are spelled out. The startup CEO sees an upside when the startup is spun off and other funds raised.

“It will be interesting to see how this works,” an analyst with a Mumbai brokerage said. “We don’t know how the investments IT companies are making in their internal startups are performing. It’s all qualitative responses, but a spin-off would be a firm statement of success. We would have to see how this plays out.” The analyst declined to be identified because he is not authorised to talk to the media.

Source: The Economic Times