Morpheus is modelled on non-monetary investments for a small stake in startups. Will this change? Are you raising a seed fund? If so, what would be the corpus?
In a very short period we have built a portfolio of 20 talented, progressive and young startups and helped them accelerate. The only reason these 20 companies work with us is because they see value in our time and contacts. We are quite happy with the results so far and don’t feel a strong need to raise a fund. Money can also start attracting the wrong type of companies. But, as an experiment we are considering raising a Rs 1-2 crore fund. Work on that may start in about three months.
How many companies are you mentoring at present, including previous batches?
We have a total of 20 companies in the portfolio.
What is the size of the Morpheus team? How do you allocate bandwidth in terms of time spent with each startup during the four-month business acceleration programme?
We are a team of three partners. Between us we spend 10-15 hours per week with each company which is part of an active batch. With companies who have graduated from previous batches, we typically do one review meeting a month and are available to them on an on-demand basis.
How do you sustain yourselves, i.e. how do you make money?
Currently all the partners have invested money to run Morpheus. We sustain ourselves from our savings. We take an equity stake of 4-8 per cent in each of the companies. Like every other business we need to make money too! We plan to do that by selling the shares that we hold in our portfolio companies. Shares can be sold through one of the three events: initial public offering, merger and acquisition, sale of our shares to a new or existing shareholder of the company. We are happy to wait 5-7 years. But by taking a small equity stake without any special rights what we are saying is, ‘We make some money when you make a lot of money’.
Would you say you have seen reasonable success in being able to transition your startups to the next stage of funding?
Yes, three companies have raised Series A funding and one company from the current batch has raised seed investment. But we don’t measure our success by the number portfolio companies which have raised money. We focus on helping our companies build strong, sustainable businesses which are cash flow positive and can take care of their own costs. They are not dependent on external capital to survive and grow. That’s our yardstick. We focus on building strong, real businesses and eventually if you build a strong business, money will find you.
What are some of the challenges in attracting Series A venture capital for your startups?
As I said our approach is to build strong business. If you have a strong business, raising Series A is no longer that big a challenge.
How many startups in your portfolio actually don’t need venture capital? Who are they?
From the previous batches Deskaway and Sutra Services are growing fine with self-funding and strong revenues. Hence they don’t need venture capital. For the current batch, it is too early to say.
In Batch III, was the shift away from web technology startups to broader segments deliberate? Why?
India’s online market is nothing more than ‘tiny’ – only four per cent of the population is online and there are about 9-10 computers per 1000 people. On the other hand India has a lot of fundamental unsolved problems that lead to large markets opportunities. That’s the reason our portfolio is focused on domains like education, health, automotive, apparel, retail, real estate, advertising and financial services. Even in previous batches, we have had only three pure online plays (Instablogs, Deskaway and Fachak) and all of them are focused on the US market. The rest have a fair amount of offline component.
Do you eventually plan to morph into a full-fledged venture capital investor?
No. We plan to continue engaging with startup in their early days and work with them closely as ‘limited co-founders’. That’s what we are passionate about.
Image Courtesy: Morpheus
