Prashant: Let’s get into the details of the four-month program you mentioned earlier. Once you accept the company for the BAP, what are your next steps?
Nandini: We do not follow a fixed curriculum. The engagement is customized and specific to each company. We spend an average of ten to fifteen hours a week to help the startup achieve its milestones. These milestones are based on the business requirement as defined by the founding team and The Morpheus team at the start of the engagement. A startup has to work on only two things – build and sell, and we help startups achieve this. Also related is the fact that the company should start making revenues as fast as it can and we help achieve it.
Prashant: How do you define success of your programs?
Nandini: There are two kinds of success:
At The Morpheus, we focus on getting startups cash flow positive and self-sustaining.
Prashant: Tell us some of the metrics that you measure.
Nandini: Various matrices for various things. Some areas we measure include product traction, customer acquisition channels, CAC, website, and so forth.
Prashant: On average, how long does the company stay in your incubator?
Nandini: Since we are not a typical incubator. The intensive engagement is for four months and life-long after that.
Prashant: How is your engagement with the company after incubation?
Nandini: As mentioned earlier, it lasts as long as the company exists, but on a as-needed basis. If someone wants a key connection to be made, help in fund raising, help in diversification, and so on.
Prashant: What the business model of The Morpheus? Do you charge companies, or is it a plain equity model?
Nandini: We rely on equity.
Prashant: Do you also invest any money in the company? Could you let us know more about the fund and how much you typically invest in a company?
Nandini: To date, we have raised a first fund of 1 crore rupees (approximately $20,000–$25,000). We started investing 5 lakh rupees in each of the companies we have accepted from 2010 onwards.
Indus Khaitan later added that they are also looking to raise two more funds, another similar fund of 2 crore rupees (approximately $40,000–$50,000) and a bigger one of $5 million for follow-on investments for their portfolio companies.
Prashant: What is the typical valuation of the company when you invest, and how do you decide?
Nandini: Take a look at this to see our valuation criteria and funding philosophy:
Though at the stage we deal with, it’s too early for any valuation. It’s based on the team and its potential. We take 7%–12% as mentioned before for our mentoring and investment. On average, we take around a 10% stake.
Initially when The Morpheus had no fund for investing in portfolio companies, to some extent entrepreneurs were not very clear on equity terms. There were significant discussions on the topic among founders, and it was not an easy go.
Aditya Sahay from Radbox enrolled in The Morpheus just before the fund was established, and he says that the fund, though small, helps clarify things in great detail. He adds that based on the founding team’s expertise and milestones achieved, 7%–12% seems decent to most. He also suggests entrepreneurs not to be very hard in negotiation, 1%–2% here and there should be fine. It is important to ensure a good relationship with the partners and if you are just looking for money don’t look towards The Morpheus, he says. On the bigger fund that The Morpheus is raising, Aditya says that would make the job of entrepreneurs at The Morpheus looking for follow-on investment easy, as they won’t have to convince another investors and partners and rather stay focused on building their businesses.