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Mentors offer services, funds to start-ups for up to 20% stake

Mentors offer services, funds to start-ups for up to 20% stake
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First Published: Mon, Jun 28 2010. 09 06 PM IST
Updated: Mon, Jun 28 2010. 09 06 PM IST
Bangalore: For Kartik Talwar and his two friends, it seemed a good gamble.
Listen to Sanjay Anandaram, MD, JumpStartUp Fund Advisors, and Vishal Gondal, CEO, Indiagames Ltd giving their opinion on firms that are offering mentoring services to budding entrepreneurs
Download link here (Vishal Gondal)
Download link here (Sanjay Anandram)
They quit their jobs seven months ago to work on a business idea they believed was foolproof—a mobile platform that would aggregate all kinds of Web services into one application.
But four months later, when they went searching for capital, they came across a professional mentor who pointed to the limitations in their offering. Senior professionals in the telecom industry confirmed the business model was infeasible.
“The unanimous feedback was that the product was too generic, suboptimal and unattractive in the current mode. It was very hard for us to come to terms with it,” said Talwar, co-founder of Mumbai-based Minkle. With help from the mentor, they reworked the platform into a niche, high-end offering and are ready to launch it in July.
Their mentor is Indus Khaitan, a general partner with Bangalore-based Morpheus Venture Partners. Morpheus is among a slew of so-called start-up accelerators that in the past few months have begun offering mentoring services and seed funding to entrepreneurs, similar to what incubators do, but for substantially higher stakes.
And if someone doesn’t have a good concept but has the aptitude for entrepreneurship, some accelerators will even provide the business idea.
Many of India’s top incubators are attached to academic institutions and often back ideas from students of the same school, with the professors acting as mentors and funds in the form of small grants. In return, they take stakes of up to 5% in these firms.
Accelerators demand stakes of up to 20% in a start-up but offer higher seed funding and professional mentors who can handhold the entrepreneurs and network them with industry experts.
The latest entrant is HeadStart Network Foundation, a start-up network platform that on 16 June turned an accelerator with a Rs25 crore seed fund. It will hold workshops for aspiring entrepreneurs where business ideas can be discussed with its mentors. Once an idea is whetted, HeadStart will help the entrepreneur float a start-up.
“We will look at funding between Rs50 lakh to Rs1 crore and take equity of 5% to 20%. Mentoring and helping companies in getting market access is a way of de-risking activity for us,” said Kallol Borah, director, HeadStart.
Morpheus, which had been mentoring start-ups earlier too for stakes of up to 5%, launched a Rs2 crore seed fund in February for its new accelerator business. It will mentor entrepreneurs, whet their business ideas and help them float start-ups, offering seed funding of up to Rs5 lakh in return for an 8-12% stake.
Bangalore-based i2india Ventures will offer business ideas if an entrepreneur’s concept is not approved. It will invest up to Rs2 crore in a start-up for a stake of 25-40%.
New Delhi-based Setu Ventures will help entrepreneurs cross hurdles such as hiring the right team and acquiring the first three to five clients. It will take up to 12% in a start-up it mentors but doesn’t fund, and up to 20% if it offers seed funding as well of Rs5-50 lakh.
“Too much premium is being added to ideas; ideas have little value without the right execution,” said Vijay Shukla, founder, Setu Ventures. “Where the idea comes from doesn’t matter. What matters is who is driving it.”
Experts are divided on the business proposition of the accelerators.
Sanjay Anandaram, managing director of JumpStartUp Fund Advisors, who has mentored successful start-up firms such as redBus.in, Ozone Media Solutions Pvt. Ltd and Insta Health Solutions Pvt. Ltd, says such initiatives are good as help for entrepreneurs in India is negligible, unlike in the US. “Start-ups are desperate to get a mentor by their side. Competition is building up and new firms are coming up every day,” he said.
Vishal Gondal, chief executive of gaming company Indiagames Ltd and an early stage investor, said the accelerator model will work only if seed funding is substantial. Unless these firms “cough up really serious cash of over $50,000 (Rs23.1 lakh), they do not make much difference to a start-up’s existence. In the absence of substantial capital commitment, they are (merely) consultants or advisers.”
Accelerators, however, do address some visible gaps. In India, many of those looking to turn entrepreneurs are professionals and too old to be able to join traditional incubation centres. Also, mentoring at these centres often doesn’t stretch beyond the basics.
“We needed a lot of feedback from industry people and help in soft aspects like product design and marketing,” said Minkle’s Talwar, a graduate from the Indian Institute of Management, Kozhikode.
“Market promotion or adding visual appeal to our offering is not what the traditional incubation centres would have helped us in.”
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First Published: Mon, Jun 28 2010. 09 06 PM IST