On Monday (Dec 19), I attended the soft launch of Mentor Partners, a unique technology-focused seed fund, in Bangalore. The firm plans to initially invest $1 million each in 10 product-focused companies in the IT and telecom space: around $500,000 as seed investment or “bridge loan” and the remaining as part of the first round investment along with other Venture Capital firms.
With two partners on the ground in Bangalore (Ravi Narayan who earlier co-founded Nextone Communications in the US and V.Prabhakar, a co-founder of Bangalore-based software testing services firm RelQ), Mentor Partners will help its investee companies get access to top companies in India, the US and other markets via its about 35 other members in its network. The network includes those who are either operating managers (like Vish Narayanan, Head of Telecom Operations at General Motors in Chicago) or “been there, done that” entrepreneurs (like Rosen Sharma who has founded several start-ups like Solidcore, VxTreme, Ensim, Stratum8 and Green Border).
While the number of entrepreneurs with good products ideas is growing rapidly in Bangalore and other cities, the bane of genuine early-stage investments in recent years has been lack of ability and willingness on the part of VCs to provide seed capital (a typical VC firm cannot invest less than $3 million) and more importantly, play a hands-on role in growing start-ups.
Mentor Partners plans to raise its corpus from high-net worth individuals and Silicon Valley venture firms. (Several Sand Hill Road firms have recently made similar investments into local VC firms in China. There are several reasons why it makes sense for Silicon Valley firms to make such indirect investments-despite the issues it create with respect to “double carry fees” for their own investors. For instance, they don’t have to prematurely invest in setting up a full-time team and office in these developing markets. Plus, they get proprietary deal flow for making follow-on investments.)
A key source of strength for Mentor Partners is that there are enough follow-on investors (including some two dozen Silicon Valley VC firms and strategic investors either already on the ground or very keen to invest in India) who can invest $3 million or more into their portfolio companies – when they are ready for it. Plus, as B.D.Goel, a member of the Mentor Partners network, points out, “success” for such a seed fund would be in validating the business models of their investee companies and helping them access name-brand investors as part of the first round. Mentor Partners will then rely on the follow on investors to take its investee companies to the next level, rather than having to hand-hold companies all the way to an exit. For entrepreneurs too, this is much better than having a larger fund invest $1-3 million when their products are still being built and then, just when they seem to be getting their marketing act together, start pushing towards a premature exit.
Mentor Partners’ model-including its relatively small fund size and its unique partner network-is a welcome addition to the Startup-VC ecosystem in India. What’s even better is that there are more similar seed funds that are either up and running or being raised. While Bangalore has seen the launch of the $3 million Erasmic Incubation Fund, Mumbai-based angel investor Mahesh Murthy has teamed up with Pravin Gandhi (a co-founder of Infinity Venture) to raise a $10 million fund to be called, well, “Seed Fund”.
Here’s hoping that these seed funds-which are filling an increasingly obvious and large gap in the eco-system-will close their funds quickly and invest in creating some very exciting technology companies out of India in 2006.
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.
Arun,
Sucess is bound to follow in NON IT ventures where an online model exists and there is:
1) Scalability
2) Faster, efficient, customer-delight service
3) The same similar offline business model sucks and customers are looking for an alternative mode of doing the transaction
Five businesses come to my mind:
1) ONLINE Trading
2) Online Recruitment Services
3) Online Ticketing Services
4) Online Realestate/Wine Websites
5) Expatriate/NRI Centric models
1) Online Trading Websites
=========================
U might have seen the frenzy created by indiabulls.com and their successful IPO and the spectacular results as people embraced online investing faster rather than theoffline broker relationship as it bypasses all the hassels
hdfcsec.com, icicidirect.com, paisabuilder.com (IDBI’s new venture), kotakstreet.com,sharekhan.com (SSKI grp) are some of the equity trading portals doing good business as equities both – primary + secondary market, options, NEW IPOs, commodity trading etccan all be done direct from ur online account. So the loop among U, ur bank account, ur online broker is complete.
Here in US similar models like E*Trade, Ameritrade, Scottsdirect, TAIB have similar models
2) ONline Recruitment
=====================
BOOM or BUST, there is always demand for recruitment/job websites and niche domains to co-exist. http://www.dice.com is a complete IT focused job portal in US which does not have a similar player in Indian space.
Naukri.com and monster.com were doing brisk business post 2001 when almost most of the sectors were in a slump following dot com bust and 9/ 11.
Leading Newspapers are slowly moving into this space, like the Times of India’s timesjobs.com portal
3)Online ticketing Services
==========================
Just imagine the pain, time involved in buying a train ticket and movie tickets for a new movie. The thought lf kills the idea of planning such an event.
Now online ticketing portal by Indian railways is doing good business and quarterly sales are shooting up by more than 100%.
http://www.irctc.co.in/
Same is the case where Movies/multiplexes are moving towards online ticket services and some players are even delivering them personally thru couriers to the customers residence when they book their movie tickets online
PVR Cinemas -http://www.pvrcinemas.com/pvr/index.asp
4) Online Realestate/ Wine sites
===============================
Our own Mahesh Murthy (Passionfund) funded an idea which was ahead of its time for the Indian markets in 2000.
WIne.com does lucrative online business in US and a country like India which has taboo attached to drinking is changing fast with the Genx taking over.
Wine companies are seeing their reveneus climb northwards as evident by the results, expansion plans of Chamagne Indage, Grover Wineyards, Sular vineyards, but a good Inda centric brewery site with buy/sell/faqs/online social networking for drinkers is missing. Mahesh funded Tulleeho is trying to fill this gap.
http://www.tulleeho.com/tulleeho.htm
Realestate has been liberalized and the industry is expected to be $100 bilion by 2010. The offline market is fraught with brokers, dalals, with dubious track records, unclear titles, no transparency in the entire process and real estate is branded as not a liqufiable asset like cash or shares as the entire transcation to buy or sell would take months.
If this entire process is made easy and transparent, then people would flok to online space.
US has some good models like zipRealty Inc., which is using the Internet in a futuristic way to buy and sell homes, cutting costs in the process >> http://www.ziprealty.com
India has woken up to this potential and we see a new wave of portals from
the early movers like
http://indiaproperties.com/
http://www.99acres.com/ ( NAUKRI.com’s realty venture)
http://www.indiaproperty.com/ (SIFY’s new Realty venture)
5) Expatriate/NRI Centric models
===============================
Hassle free Remittance services for NRIs like WesternUnion, Times of Money (http://timesofmoney.com/homepage.jsp) hold potential keeping the umbilical cord active for expatriate remittances to anywhere, anytime, anyamount (as long as it is less than $2k) in India witin 24 hours
Sulekha.com >> which provides many services for Indians who entered US for the first time or for job/accomodation searches for NRIs in US
Ur MAN in INDIA (http://www.yourmaninindia.com/ ) >>> TTK group’s portal which provides various services for NRIs outside INDIA, who want small things still done in India but can’t ask their parents to take care of these activities as the parents may not be aware, illeterate, old, disabled etc. provide good market
Regards,
Madhu
It’s good to see seed funding making a start in India, but there are two issues that worry me still:
– Requirements for seed funding – Will only experienced well defined management teams get an hold of it or investors would be taking risk with young teams? Most of the angel investment that has taken place in India in the past has gone only with senior management teams.
– Amount of seed funds. People often think India to be a low cost destination and think lower amounts would do. IIT Delhi’s incubation fund provides around $20K -$30K of seed fund. If you try to do the calculation yourself, such funds don’t help anyone – neither the incubatee neither the entrepreneur. I think that’s one reason why there is no serious product company coming out from universities and most have taken the path of services to survive.
The key differentiator is people in US are willing to work for stock implying lower HR capital. But in india young engineers don’t understand the value of stock and need hard cash. My view is amount of seed funding needed for Indian or US tech companies would be comparable though the later stage funding needs for Indian companies would be a lot less.
Hi Sunil,
Your take on why the “amount of seed funding needed for Indian or US tech companies would be comparable though the later stage funding needs for Indian companies would be a lot less” is very interesting indeed.
Thanks
Arun
Hi Arun
I was trying to find out more about Mentor Partners, are these http://www.mentorcapitalpartners.com/ the same? There are no results (news or otherwise) if u search the site for any mention of India.
Are they accessible through TiE? Can u post more information?
Thanks.
— Pooja.
Hi Pooja,
The web site you have referred to is not that of *the* Mentor Partners.
Ravi Narayan of Mentor Partners, who is also closely associated with TiE Bangalore, can be reached at ravi (at) narayans.com
Regards
Arun