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New breed of VC firms focusing on bottom rung of start-ups

New breed of VC firms focusing on bottom rung of start-ups
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First Published: Tue, Aug 19 2008. 01 23 AM IST

Angel investor: Sameer Guglani of Madhouse Media Pvt. Ltd.
Angel investor: Sameer Guglani of Madhouse Media Pvt. Ltd.
Updated: Tue, Aug 19 2008. 01 23 AM IST
Mumbai: When engineers Sumit Jain and Lalit Mangal left their software jobs last July to start their own social networking venture, they knew little about running a business. By December, they were struggling to define their business model and faced a “serious financial crunch,” says Jain.
Then they met online DVD rental company Madhouse Media Pvt. Ltd co-founder Sameer Guglani at a start-up meet. For six months, Guglani worked closely with them on their core offering, commonfloor.com—an online community built around apartment complexes—and helped them raise funds. Instead of charging a fee, Guglani preferred some 8% stake in Jain and Mangal’s venture.
Angel investor: Sameer Guglani of Madhouse Media Pvt. Ltd.
Morpheus Venture Partners, the firm Guglani has since set up with Madhouse co-founder Nandini Hiriannaiah, has worked with three start-ups so far, including blogging platform Instablogs Inc. and catering site Foodathome.in. It is now shortlisting five from a pool of 15 start-ups.
Morpheus represents a new breed of venture firms in India that focus on the bottom rung of start-ups, some without even a business plan. From deciding on a name to negotiating funding, these firms want to help start-ups tide over their earliest growth pangs.
Inspired by the US venture firm that pioneered the mentoring model in 2005, Y Combinator, Indian counterparts such as Morpheus and New Delhi-based Opdrage Venture Partners are getting involved with start-ups at an early stage, before seed-stage funds or boutique investment banks.
Y Combinator, which typically invests less than $20,000 (Rs864,000) for small stakes of between two and 10%, works with start-ups in batches and has funded 102 ventures.
In India, where individual angel investors are few, firms such as Morpheus and Opdrage, offer start-ups mentorship and aim to create a pipeline of fundable start-ups for investors. With angel firms such as Accel India Venture Fund (formerly Erasmic Venture Fund) and Seedfund raising larger second funds, the firms expect the gap between starting out and getting funded will widen—increasing the demand for their services.
“There is enough seed money available in India waiting for quality start-ups,” says Kris Nair, founder, Opdrage Ventures. “We want to be an entrepreneur cooperative.”
Nair, a founding member of Satellier Inc., a Sequoia Capital-funded building information modelling start-up, set up Opdrage six months ago, mixing mentoring with investment banking deals. The firm is working with six ventures, including software application company APIster, furniture design store Cubicle One and a modelling start-up that is yet to be named.
Firms such as Morpheus and Opdrage today invest little or no money in the start-ups they mentor but plan to raise funds at a later stage. Opdrage has invested a maximum of Rs400,000, while Morpheus has no capital investment. “We’re looking to either raise a fund of $2-3 million or tie up with partners for initial funding of our portfolio companies,” says Guglani.
Venture firm Mentor Partners, an early example of the mentorship model in India, began with consulting for a fee but later raised its own fund.
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First Published: Tue, Aug 19 2008. 01 23 AM IST