Mahesh Murthy, co-founder of Seedfund, the early stage investment fund, which has over Rs 400 crore worth of assets under management, speaks to Prabhu Mallikarjunan about the e-commerce market trends and the funding ecosystem. SeedFund has invested in start-ups like Voonik, Edusports and Chumbak among others. It has had two big exits, Carwale and Redbus, which gave the company 9x and 20x returns respectively. Excerpts:
How do you see the current e-commerce market evolving?
Any e-commerce market, whether it is a broad e-commerce market or a narrow one, essentially it will move to a position where the winner will get 80-85% of the market share. The second player will get about 8-10% market share and the third player will get about a 0.8-1% market share. So will be the case in India. Amazon will be the runaway winner, Flipkart will collapse and Snapdeal will shrink and die over time. Paytm is in a different game. It will succeed as a payment bank but not as an e-commerce marketplace.
Why do you say that homegrown e-commerce players will not be able to make a mark?
Unlike Russia or China, India is an unregulated open market. It is because of the local regulations that Yandex is the Google of Russia and vKontakte is the Facebook of Russia. Same is the case with Alibaba in China. Copycat models are going to fail. Any company that relies heavily on advertising will die. A product which has the ability to go by word-of-mouth, will win always. Take for instance Baba Ramdev’s Patanjali. Soon, it will beat players like Hindustan Unilever.
Which are the companies Seedfund is interested in and betting big on?
I am personally interested in hardware space and agriculture start-ups. Some of the companies I am betting on are Chumbak, a design led consumer retail company and MyDentist, a holistic dental care center that enables preventive and proactive tooth care at reasonable price.
What according to you is the best way for a start-up to raise funds?
One has to generate enough revenues at first and then fund the company out if it. The second best option is to secure loans from banks and third option would be to raise money from angel investors and venture capitalists.
How do you see the current VC funding ecosystem?
Why is that we need to believe that everything needs to get funded by a VC? Look at the amount of money we are pouring into start-ups. We promote and support the wrong thing. There are numerous other ways to fund a company. I have invested in agriculture start-ups, and banks are ready to give loans. Why is that many are stuck with this particular model of VC funding? There’s the public market, there’s IPO, there are many other ways. VC funding is at best the third or fourth best way to raise money.
How do you plan your investments and exits?
We don’t plan an annual disbursement. If there’s no reason for us to deploy funds (invest in a start-up), we will keep the money in banks. We invest very small amounts of money and build the company and scale up rapidly without spending much. So far, I have run a 10-year-fund and also had successful exits like Redbus, Carwale among others. For exits, the approach of short-term gain is a long-term pain.