Unilver setting VC funds ranging 657-900 crore

Unilever Plc, the world’s second largest consumer goods company, is setting up a venture capital (VC) fund to invest in India.

“Having established the Unilever Corporate Ventures model in the developed world with investments in both venture capital and private equity, we are now leveraging the model into emerging markets commencing with India and China,” a Unilever spokesperson said in an email.

Unilever set up its corporate venture unit in 2001 with an initial fund of €250 million (around Rs1,600 crore today); a second fund was subsequently raised in 2006. Unilever Corporate Ventures has investments across Western Europe and North America in both independent funds and a portfolio of direct investments.

“The team has already been formed. Currently it is operating in London and will shortly shift base to India,” said one person with direct knowledge of the development. “The fund size would be around $150-200 million (Rs675-900 crore) initially and they intend to raise money from third parties,” added this person who is associated with the private equity industry and did not want to be named.

The maker of Lux brand soaps is also considering a similar fund in China.

India and China are exciting markets, a senior Hindustan Unilever Ltd (HUL) executive said. “The fund will invest in areas such as media, technology and anything that is outside of our core business area,” he said. He declined to be named as he is not authorized to speak to the media on such issues.

The venture fund will invest in funds that maximize the potential strategic options to Unilever, from smaller companies to mid-size companies. “This will be complemented by strategic direct investments. We are currently in discussions with a number of organizations,” said the spokesperson.

Unilever’s plan to have a VC fund in India signals how consumer goods makers are warming up to the idea of setting up such funds, a space traditionally dominated by IT firms.

Intel Capital, the venture arm of chip maker Intel Corp.; SAP Ventures, the venture arm of software firm SAP AG, and Siemens Venture Capital of engineering conglomerate Siemens AG are some corporate venture funds that invest in India.

Among local firms, Future Ventures India Ltd, promoted by Pantaloon retail chain founder Kishore Biyani, and a fund managed by Godrej Agrovet Ltd, backed by Godrej Industries Ltd, are two corporate-backed VC firms focused on consumer markets.

Large firms are set up corporate VC funds to buy stakes in smaller firms. The objective is either to buy them at a later stage or use their technology.

Unilever has two such funds operating since 2002. Unilever Technology Ventures, a North America-focused fund, based in California, invests in life sciences, materials science, clean technology and consumer-related technology.

Langholm Capital, a London-based fund that is part-funded by Unilever, manages around €250 million and invests in mid-market private firms in high-growth consumer sectors across Western Europe.

Product innovations and technology breakthroughs are integral to the success of packaged consumer goods companies. Last year, Unilever said that it would halve its environmental footprint by 2020 and also make products that help consumers reduce their environmental footprint.

In the past few years, the company has launched products such as Surf Excel Quickwash that uses less water than its existing washing powder Surf Excel to rinse clothes, and has made ice creams more healthier by reducing sugar and adding more fruit as it discovered a new ingredient called “ice structuring protein”.

Most corporate VC funds are set up to increase value for the parent in the future, said Pradeep Tagare, director at Intel Capital India. “In some cases, the intent is to acquire the company eventually while in some cases it is to create a vibrant ecosystem.”

Tagare cites the example of Intel Capital’s investment strategy in the Wi-Fi segment. “When we first started looking for Wi-Fi investments, the entire ecosystem wasn’t ready. So, we went ahead and invested in 20-30 small companies developing the technology. When the ecosystem grew, we had first access to these companies,” he explained.

In an interview with Mint last week, Jai Das, managing director who leads SAP Ventures’ local activities, said India is among the fund’s top three destinations, after the US and Europe. “Globally, we have been investing for almost 15 years…the point of the fund was two things: one was to expose SAP to new business models, emerging trends and, increasingly, also activity in emerging trends in emerging economies, and two, financial returns.”

However, some bankers are apprehensive about the prospects of a fund that invests in the consumer products space. Ritesh Chandra, executive director and head (consumer group) at investment bank Avendus Capital Pvt. Ltd, has a word of caution. “There is a strong venture capital interest in the consumer space in India, but the deals are few.”

According to Chandra, one of the reasons for fewer deals is that most companies in this sector are cash rich. Still, “a company-operated VC arm would benefit the company to lock in and engage a future source of supply”, he added.

HUL, with revenue of Rs19,735.20 crore in 2010, accounts for 6-7% of Unilever Plc’s global revenue, while emerging markets contribute 53%

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