Seedfund: The fund that spotted RedBus, CarWale, AgencyFAQs

In 2007, Mohit Dubey, CEO, CarWale, was invited to a meeting of fledgling companies. At the time of that meeting, his turnover was a princely Rs. 5 lakhs a year. At the presentation, he spoke of a target of Rs 50 crore, thousand times his current rate. Dubey says the inspiration to set a target that high came from Seedfund, organizers of that meeting who Dubey says invested really early in his company when there was little happening outside.

"They got me to think big," says Dubey, whose websites clocked more than 10 million visitors this month. Seedfund is tight-lipped about how much money they made when they exited CarWale in 2010, but sources say it is close to ten times what was invested. Dubey says his company has grown five times in revenues since then, and made profits every year.

However, Seedfund's best known protege is RedBus, though understudies Heckyl Technologies and AgencyFAQs are also both well-placed in their respective circles. Heckyl is helping small traders make sense of news in the stock market. AgencyFAQs, started 1999, is one of India's oldest portals in the media and advertising space.

Seedfund is small compared to the biggies in the space. In August 2013, Sequoia Capital raised $1.17 billion (around Rs. 7200 crore) for three different funds. In contrast, Seedfund's first round raised in 2006 was Rs 65 crore. The second, Rs. 320 crore, was raised in 2010. So far, they have invested in 30 companies.

Mahesh Murthy is one of the partners at Seedfund. He says that the number of ideas he gets for evaluation each month has gone up ten times from the time he started. These days, Seedfund people sift through over 200 ideas a month. But Seedfund isn't the kind of organization that throws money at companies it chooses and lets CEOs go home with hefty salaries. Founder involvement in a start-up should be low in terms of salary and high in terms of equity participation. says Murthy. In fact the office space Seedfund offers their sponsored start-ups is a low-ceilinged basement with four tables, mild air-conditioning and broadband Internet.

This rings well with start-ups that have been successful. "In the early stages of a company - where founders have good equity participation, and company has less financial resources - it might be a good idea for founders to take less salary," says Phanindra Sama, CEO, RedBus.in, which was acquired by the ibibo group for Rs. 800 crore. Market sources say Seedfund's exit was at 25 times the value invested.

Sama says that one of Seedfund's key contributions to his business was to put less emphasis on marketing and more emphasis on product. "In our initial business plan when we had a sizeable budget for marketing, Mahesh Murthy asked us if we ever saw advertisement of Google or Yahoo (in 2006). The answer was no," Sama says.

"The language they use makes you comfortable," says Mukund Mudras, CEO, Heckyl Technologies, another of Seedfund's babies. Heckyl makes software that helps traders understand whether a piece of news is positive or negative on a company's stock.

Seedfund was started by Bharati Jacob, Mahesh Murthy and Pravin Gandhi in 2006, and the team has grown to include Paula Mariwala, Sanjay Anandaram, Sarabjeet Singh, Shailesh Vickram Singh and Tarana Lalwani. Dubey says the Seedfund team was always available to take care of problems. "I learnt financial discipline from Anand Lunia, then CFO of Seedfund. Mahesh was there for solving marketing problems," he says.

Murthy says that Seedfund focuses on solving problems for entrepreneurs. "I don't think big money means a bigger company. If every problem could be solved by throwing money at it, the world would be a very different place," Dubey says.

Sama says the entire team at Seedfund helped him in building his business. They got him out on to the street, talking to bus operators trying to convince them to give as few as two seats for sale on the RedBus Website, and making 16 hour trips to far flung destinations in South India. Jacob helped the most at Seedfund. "Bharati was on our board and attended almost all our board meetings," says Sama. Her biggest contribution - besides tangibles like helping RedBus in recruitment, making connections in the industry etc., was to place her trust on Sama and his running of the company. "She would support my decisions with great conviction and this was a significant thing to happen to me as an entrepreneur. I became more confident and responsible, and this set a very good foundation on which the company and the company's value system was built," Sama says.

That is what sets Seedfund apart from others, agree Dubey and Mudras. "Seedfund understands who and what the entrepreneur is, and is content to let him work from a distance," Mudras says. Dubey says the major lesson he learnt is that as CEO, all major decisions should be taken for benefit of the company, and not for investors, or shareholders, or even the CEO.