Morpheus: Y Combinator-Like Incubator in India (RWS Interview)

Written by Bernard Lunn / October 2, 2009 4:00 PM / 23 Comments

This post is part of our ReadWriteStart channel, which is dedicated to profiling startups and entrepreneurs. The channel is sponsored by Microsoft BizSpark. To sign up for BizSpark, click here.

Morpheus describes itself as "a gang of serial entrepreneurs and around 40 startup founders" who are "trying to make a small contribution towards India's startup revolution." The venture aims to fill the gap in early-stage financing with a decidedly hands-on approach. Is it a fund, an angel network, or an incubator? Are these labels even still relevant? What segments does it focus on? What is early-stage innovation in India like? We spoke recently with Indus Kaitan, a Valley entrepreneur who returned to India as a Morpheus partner. Read on and listen to find out more about the early-stage scene in India.

Listen to the Interview

Download the MP3.

Two Things to Know About Morpheus

How much equity do you take in each company?
"We take an equity stake of 4 to 8% in each of the companies we engage with as part of the business acceleration program."

Do you invest money in companies?
"No. Currently, we do not make any capital investment. We work alongside you as a co-founder, and we invest sweat capital and intellectual capital in the portfolio."

In other words, Morpheus is an incubator (the team calls it an "accelerator"), not a fund. If you need cash, find it elsewhere. Morpheus is okay with the label "Like Y Combinator, but without the cash." That makes sense, because cash is not what makes Y Combinator interesting. Also, as Indus explains, very few people in India are willing to work purely for equity, without cash. Morpheus is willing to do that. It invests time and experience for equity.

Our Questions and MP3 Guide

Question: How is early-stage financing doing during this downturn compared to the last one in 2001/2002?

Skip to 2:24 in MP3
Summary: Investment during the last six months is down 58% from a year ago. VCs have moved to later-stage, leaving a real gap in early-stage financing.

Question: How is the VC model changing, if at all, and how does the global financial crisis impact this change?

Skip to 5:30 in MP3
Summary: VCs in India are investing in profitable businesses, even in publicly traded companies, because they need to juice short-term returns, leaving early-stage financing in trouble.

Question: What percentage of your investments targets a local or regional market as opposed to a global market?

Skip to 11:00 in MP3
Summary: Morpheus does local plays in India. It had tried global plays from India, but unless management and marketing were in the US, you missed that critical local nuance.

Question: If costs are lower in India than in the US, how is this reflected in the amount of funding required?

Skip to 14:48 in MP3
Summary: Funding is not lower and may even be higher because people won't work for equity as they do in the Valley.

Question: What market segments excite you today?

Skip to 19:30 in MP3
Summary: Health care for the mass market in India.

Interesting Portfolio Companies

Vericar does used-car certification and appraisal, catering to the used-car market in India, which is at a million units every year.

Robots Alive is the second company in India to have manufactured a robotics arm from the ground up. Costs were around $15,000, compared to an imported version that cost around three times as much.

Listen to the Interview

Download the MP3.

Microsoft BizSpark is a startup program that gives you three-year access to the latest Microsoft development tools, as well as connecting you to a nationwide network of investors and incubators. Click here to apply.

Comments

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Nice effort!

"Sweat Capital"

Posted by: COP | October 2, 2009 5:05 PM

"a gang of serial entrepreneurs and around 40 startup founders" who don't have a single dollar it seems.

"Sweat Capital" doesn't pay the bills while trying to build your startup.

Posted by: Jason | October 2, 2009 9:29 PM

@Jason: "Paying bills while building a startup" is very small part of the equation. I believe that there are 1000 other more important things to consider and work on during the early stage. Idea is not to find capital to "Pay your bills" but to make something valuable enough for your target audience to build a viable business model. That's where MVP plays its ACE on.

Posted by: Sumit Jain | October 2, 2009 10:21 PM

Their sweat stinks. Stay away.
Please stop being "X of Y" etc. Be something original. We don't need to give away 4-8% equity for their boring and useless lectures.

Posted by: Kaushal Pandey | October 2, 2009 11:11 PM

With all due respect @Kaushal: Sweat always stinks literally. You never give away even .01% of your equity for listening to lectures. I would suggest you to contact MVP guys to understand their working model. Don't publish half baked or wrong opinions.

Posted by: Sumit Jain | October 3, 2009 12:50 AM

Its great to see Morpheus ventures taking ideas off the ground and creating huge impact on the startup eco system in India.

Posted by: Saurabh Sahni | October 3, 2009 1:37 AM

Being a portfolio company of MVP we know how much we have matured in last couple of months working with MVP.

@ Jason , Kaushal: It takes more than funds and capital to run a company. Had it been so easy I could have started another google by borrowing money from market. Whats more important is how you execute your ideas, how quickly you adapt to an unexpected and undesirable situation, keep moving forward and thats where MVP comes into picture.

Posted by: Mohit | October 3, 2009 1:52 AM

LOL. 4-8% for unending "advice" from people who claim to know better. The amount of equity is not significant, but the value being provided is questionable. I have built advisory boards for the startups I've run in the past, and its been a very useful way to get advice from veterans as well as a source of useful connections. Doing it that way rarely has you spend more than 5% of the company. I'm Indian; and I know how much older Indians love to blather on endlessly with 'authority' even in areas they're unfamiliar with and have no experience in. So color me dubious on this one.

Posted by: Alabaster | October 3, 2009 8:49 AM

Love the "Sweat always stinks" comment!

Posted by: Bernard Lunn | October 3, 2009 9:12 AM

I would want the advice of entrepreneurs who have a proven track record. From people who have built companies and sold them or made a profit. I want the advice from people who have personally earned enough money to invest in another company.

Posted by: Jason | October 3, 2009 10:47 AM

I agree with Jason on 'taking advice from entrepreneurs with proven track record'. MVP has proven entrepreneurs on board.

However, it makes sense to suspend judgment till one gathers enough data to make a sound one. MVP for example engages in a no commitment 3 week period so that a start up and MVP can evaluate each other's potential. After all, life is as much about the paths we take as it is about the paths 'we don't take'.

Here's my take on the role of money, mentorship, VC's and incubators.
http://easysquarefeet.blogspot.com/2009/08/what-young-start-ups-need-most.html

Posted by: Ashutosh | October 4, 2009 12:14 AM

Had a look at the people running Morpheus. Not impressed. These may be fine people but they are not top-shelf entrepreneurs with a major exit behind them. I'm speaking of the people running the operation because those are the only bios in their Team page. Entrepreneurs know better than anyone else- you will get no end of "advice" from everyone and their brother about what you ought to do. You have to be discerning and find only those with stellar track records as your sounding board. I'm sorry but a minor acquisition does not constitute a major entrepreneurial success. There is nothing more obnoxious than dealing with people who think they're ready to "mentor" at the ripe age of 30 without any major exit. Finally, "sweat equity" isn't merely running your mouth and giving your tongue a workout. Can these people make important business development connections; can they connect you to real financing. I have no confidence they'll work towards this end; since there is little to this effect on the site. So you're basically coughing up 5+% of your company for something with no assurances. I regret if this comes across as critical; but this is coming from someone who has run several venture-funded startups. You get a real financial backer (the right angels or VC)- and a real rolodex of A players will be at your disposal.

Posted by: Alabaster | October 4, 2009 9:28 AM

All of these guys never had any successful startup advice (the definition of proven entrepreneurs = failed entrepreneurs! :) None of these guys ever had operational excellence (shows up in their stories as well..not even close to successful exit)
- look at the bunch of cos they work with - all kids and by the time they realize they were fooled, the timing is over.

This isn't new for India where people just use the name of YCombinator to market themselves (just the way bollywood copies lots of hollywood in the name of inspiration).

Hope startups realize that 8%+ equity for a bunch of advice is something that not worth (i.e. if you care about your co. valuation/future growth)..
And for protfolio cos who are supporting MVP - go back and figure out your operational part, before you 'outsource' that to somebody else.

Posted by: rk | October 4, 2009 9:57 AM

Quick note to rww team - please do not have fillers for your sponsors, i.e. Bizspark proramme.

This was definitely one of those articles.

Posted by: rk | October 4, 2009 10:10 AM

Quite a novel concept to make money from a startup without actually ditching a dime. And if you remove money out of the equation, there will be many EXPERTS that could try to help a startup grow, in return for a small equity.

After all what Venture capital firms bring to startup along with Money is their expertise and network. Isn’t it? How to rely on somebody that doesn't have a stake in the business?

Posted by: Murali | October 4, 2009 11:42 AM

Its an interesting debate forming here. Parsing what you get from a VC firm:

1. Cash

2. Brand Credibility ie a "Kleiner funded venture"

3. Contacts

4. Advice

It sounds like Morpheus don't do 1 and are light on 2 (ie not brand name superstars) and so their value of 3 and 4 is discounted.

To me, it depends om how much they get in the trenches and hustle (aka make things happen). If they do, they have big value to those who cannot raise the cash to hire people to hustle. This is particularly true in India where - unlike America - it is hard to get people to work for equity alone.

If they just stay on sidelines and offer wisdom well then, er, pass.

Posted by: Bernard Lunn | October 4, 2009 4:34 PM

I personally prefer advisers to get their own "skin in the game" at seed stage. There is too little by way of accountability in "sweat capital".

Having said that, MVP are trying to fill in a major gap. I wish them much success with their efforts.

- Santosh

Posted by: Santosh | October 4, 2009 5:03 PM

I find it rather strange, people judging others with anonymous IDs (read anonymous cowards) being so vocal.

We have being associated with MVP as their batch one company. Its almost a year now since we graduated. I consider joining them as one of the good decisions we took.

There is a saying in India

"Mujhe koi dukh hai to isliye nahin ki mujhe dukh hai, par isliye ki mera padosi kyon khush hai"

English translation:

I feel sad, because of not my own sorrows, but because why my neighbor is happy".

My message to Anonymous cowards/commentators - Get a life. And remember what Dhirubhai Ambani has said - "Jealously is a sign of respect".

Posted by: Ankit | October 5, 2009 2:19 AM

Very interesting dialogue, here.

Some of the comments though are based on the somewhat faulty premise that only an entrepreneur who has made a mega exit can provide good advise. If the success of a directly or indirectly involved entrepreneur's venture was a pure function of his/her earlier venture then entrepreneurs would not/never fail after their first/initial mega play.

I know all the three "fire crackers" at MVP and can tell anyone who cares to read that these people are first rate. All the way.

I think this debate also narrowed down the overall message that we need to take away. MVP is one of the very very few genuine entreprenership fostering endeavours in India, today. Guys, give them a hand!

@Bernard - Valid observations.
@ Ankit - Good point. My contact details below :)

Rudhir Sharan

Here is my Linkedin profile - http://www.linkedin.com/in/rudhir

Posted by: Rudhir | October 5, 2009 4:31 AM

>I find it rather strange, people judging others with anonymous IDs (read anonymous cowards) being so vocal.
>My message to Anonymous cowards/commentators - Get a life. And remember what Dhirubhai Ambani has said - "Jealously is a sign of respect".

Ankit- That sort of juvenile name-calling benefits no one and reflects poorly on you.

Posted by: Alabaster | October 5, 2009 12:17 PM

Sorry for the lengthy post but I got several points to make here:

1. Mentors do matter:

I am entrepreneur myself and know very well (I assume most of the people on this forum would know as well) - what it takes to start a company and grow.

I started out - after working for 15 years - and yet it took me 1 year to learn other areas of running business (areas other than developing the product and selling it!). I am sure I'd have done with some mentorship as it is available with TiE or other such forums.

Most entrepreneurs understand the market and the product (many a times better than mentors - which is why they become the entrepreneur in the first place!) - but not many understand the financials, HR, operations, admin and so many other stuff - all these are also required to run a business. Mentors are very handy at this juncture.

Besides that they are a good sounding board and can bring new perspectives which typical entrepreneur misses out - because he is so deeply involved with his vision.

Whether you give 5% or less or nothing could be subject to debate and depends on the kind of trust you have on your mentor.

2: Money (particularly VC money) is not everything:
Don't get me wrong - money is important - but not everything. If it was then all the VC funded companies would have succeeded and all the non funded company would have failed.

3. Let's not judge them by CVs:
I can bet if the same people were offering money (which I am sure they'd do in due course) - one wouldn't look at the CVs.

I do not know either of them and yes the CVs do not *sound* interesting but - then how many CVs have you seen of the VC/Angel funds? I have seen most of them (those active in India) and not many of them *sound* interesting either.

Let's not judge people by CVs (if CVs could decide - then all recruitments would have happend based on CVs itself.) One must engage with any mentor to see what value he/she can bring to your business.

Kanchan Kumar

Posted by: Kumar | October 8, 2009 4:59 AM

>3. Let's not judge them by CVs:
I can bet if the same people were offering money (which I am sure they'd do in due course) - one wouldn't look at the CVs.

Thats precisely the point Kanchan- if they could add value financially, screening their CV would be less important. Of course smart money beats dumb money; but cash is necessary in building most worthwhile startups. Its precisely because they are NOT offering any cash, that their background is all-important. And in that department, they are lacking.

Posted by: Alabaster | October 12, 2009 12:39 PM

These guys have figured out a very smart way of making money by taking equity in start-ups. If the start-ups do well - they make money. If the start-ups make no money - these guys have nothing to loose.

Posted by: Gaurav | October 19, 2009 12:23 AM