Exclusive: Mahesh Murthy thinks that the future of investing in India isn’t the current Venture Capital Model

Mahesh Murthy teamed up with Pravin Gandhi and Bharati Jacob to set up Seedfund in 2005, which is a leading early-stage venture capital fund with marquee investments, including Carwale, RedBus, MyDentist, Chumbak, AFAQs, and Vaatsalya.

The trio was passionate about the internet boom and with giants like Google, Motorola, and Reliance backing the fund, they saw nothing stopping them when they organized their first round which was $15 million.
“One of the things that we were clear about was that doing business in India doesn’t take a lot of money, you needed to invest that money smartly. Our philosophy has been the same in the past 10 years- invest small amount of money, invest more as you gain confidence, work very closely to build a lot of value at an early stage,” Mr. Murthy told Business Insider.

Their first investment was Carwale from which they exited gaining ten times the investment, the second was Redbus from which they exited at 24 times the amount invested. The entire fund is closing now at about 4 times the investment, which is the highest return for any investment firm in India, according to Murthy.

Their second fund materialized in 2010 and still has four years to go and Murthy believes that they will again return three times the investment.

In a country where funds raise huge amounts of money but don’t return any, he feels that in terms of investors, nothing has changed.
“I’ve grown as an investor in the past decade with total of 55 investments, but being in a Venture Capital is the same. There’s a time limit to it. We had to exit out of Carwale and Redbus due to the size of the next round and also to show returns on the investments which means that we can’t let the money grow further,” says Mahesh who says that frugality and building a product that is build with so much effort that it doesn’t need advertising has been his goal.

He feels that India has a copycat culture where most popular companies in the country are just raising a lot of money, discounting and advertising which he views as failure and says that consolidation is bound to happen in the eCommerce and Ride-hailing space for sure.

Murthy believes that the American Venture funding model is flawed in India because the exits happen too quickly within 8-10 years and in India, things are still picking up. “It’s also not fair to the entrepreneur because he will think the right time to exit a company is within 6-8 years which is when the investors will exit in accordance with this model,” he says, dissatisfied with the current scenario.

The solution

Mahesh has been working on a long-term fund and also specialized funds which he thinks are better suited to the current emerging internet companies’ scenario. Sectors like Defence, Space and Electronics interest him for a broader long-term fund.
He leaves us with thoughts from great change makers like Elon Musk, Warren Buffet and Richard Branson, Steve Jobs and Richard Feynman and how non-conformity changed his life and it can change yours too.