Mahesh Murthy is an innovative investor, entrepreneur and speaker. He founded Passionfund, Seedfund and Pinstorm to invest and guide startups. Seedfund, India’s leading venture capital was twice voted ‘India’s best early-stage fund’ by an independent publication surveying Limited Partners in 2010 and 2013. A multiple award-winning creative writer and director, Murthy won ‘Asia Best Commercial of the Decade’ award. He has delivered a number of keynote speeches in various countries on startup businesses. Talking to IBN Dispatch, Murthy, who has already invested in more than five dozen ventures in different regions including South Asia and Europe, highlighted the status of startups across the world, along with the challenges and prospects. He sees immense prospects for the growth of startups in Nepal by taking advantage of the huge growth of startup investment in India. Excerpts:
Could you please shed light on the status of startup businesses in South Asia?
I have been investing in the South Asia Region (SAR) for 21 years. My investments have concentrated in Europe and SAR, including India. I started looking at Nepal 3 to 4 years ago for investment. My experience has not been so good. I came back from the US when India was liberalising its investment climate with no limits on startup investments. Today, India has developed a thriving ecosystem of investments with different layers of investment in terms of investment amount.
To make the ecosystem, you need to allow everybody to come in from the bottom to the top. If you do not have the bottom, the top will have nothing to invest in. If you don’t have the top, the bottom investment will not find an exit. So, you have to build the entire ecosystem.
I have already invested in a total of 65 ventures in Thailand, Sri Lanka, Mauritius, Malaysia, Eastern and Western Europe, three of these ventures received grants from the European Union. I have found that the world is becoming competitive to attract investors in recent days.
Could you elaborate on your attempts to invest in Nepal?
I have been trying to invest in Nepal for the past 4 years and approached the then CEO of the Investment Board Nepal. As an investor for startups, I found some issues. First, I cannot make an investment of less than NPR 50 million. Most startups are IT-based which need minimal investment or not more than NPR 50 million. In India, you can start with INR 500,000 to 1 million. The huge investment requirement is harming startup investments in Nepal. The ‘Global Entrepreneurs List – World’s Most Bizarre Working Destinations’ put Kathmandu 3rd at the global level. Second, IT businesses do not fall under the ambit of the Ministry of Information and Communication Technology nor with the Ministry of Industry. In Nepal, because of this, Nepal Rastra Bank refuses to grant permission to remit the money. This situation discourages small innovative investors and only helps big business houses. Even in India, we have to get RBI approval but it is a bit easier.
Third, startups require pleasant places to operate with high bandwidth and good connectivity. They are small investments with their business overseas. If I am in Nepal and want to have business overseas, I cannot do this from Nepal. Among other ventures, I have already funded three companies in India which have launched two satellites into space. My total funding for the companies was just INR 20 million.
My reason to come to Nepal is because it has very good manpower. But, when we try hiring staff from Nepal, they put themselves as a consultant, not as an employee. This is because they have to contribute 32 percent to the Social Security Fund as per the relevant regulations.
How are you assessing the Covid-19 situation? As an opportunity or challenge for startup businesses?
Covid-19 is a great opportunity for startups except for those in the hospitality sector (hotels, resorts). What we have seen during Covid-19 pandemic is people want to go back to their homes and work from there through data services. They have moved to beautiful places and they are saying that they can work for any company in the world from anywhere in the world. They are working remotely, and people want to work remotely. Several countries are providing visas for entrepreneurs to come and work in their countries. Even taxes are very low. People are looking for better places to work from. Covid-19 is a net positive for people who are trying to start startups. It is especially so because people do not care about the location anymore. Nepal can take advantage of the Covid-19 situation as one of the most beautiful places in the world. Covid-19 can be a good opportunity for Nepal and it can offer a pleasant climate for startup investors from across the globe. It has a huge opportunity to attract startups from all over the world. Nepal can offer entrepreneurial visas or remote working visas to facilitate people from around the world to visit.
Some news reports suggest that Indian startups are facing a host of challenges. What is your take on this?
Some 20 years ago, the annual investment in startups was USD 20 million in India. Today, the amount has reached USD 30 billion annually. Now, the downturn we talk about is that it went down from its peak of USD 40 billion to USD 35 billion.
Then, the government changed the laws because it lost investment. India has changed some laws because three years ago, 40 percent of our entrepreneurs moved to Singapore to get favourable tax treatment. Singapore is modern in terms of tax treaties and their compliance. Investors do not want to invest in China and opt for countries like the US and India. They have business friendly policies. It still creates 200-300 business plans per month, I get 2,500 business plans. I have been getting this number constantly for the last ten years. Some are from Nepal as well. They want the funding, but it is hard for me to fund them because it is hard to take the company to the Nepal stock exchange.
How can startups contribute to the national economy?
In 2006, I invested in a startup which was selling bus tickets at the rate of four tickets a day. Over a period of 7 years, we enabled it to sell over 125,000 tickets a day. It has brought over 10,000 private bus operators into its network. Bus service revenue increased by 20 to 30 percent making the service more reliable. Today, they are selling around 400,000 bus tickets per day. They have strengthened their capacity to transport more people through comfortable services and systems. Similarly, in the case of satellites, we have estimated an annual revenue of INR 3 billion when dealing with 5 different countries. We launched a satellite at the cost of INR 200 million, which is far lower than the cost estimate of INR 5 billion by the Indian Space Research Organization (ISRO).
Though still being among poor countries like Nepal, India has made big strides in startup investment. Even in the farming sector, startups are making a difference. I have a small farm outside Mumbai where young farmers launched startups that earn them twice as much as what their fathers earned. It is the direct advantage of startups.
How can Nepali entrepreneurs be linked with Indian startup investors for the benefit of both countries?
There is a lot of scope for collaboration between India and Nepal regarding startup investment. It makes geographical sense. If I want to invest in India, I will look for investment in Nepal, Bangladesh and Sri Lanka too. Indian entrepreneurs are looking for ways to reduce cost. If it is possible, they can set up a subsidiary in Nepal to develop technology and software. But when we invest in Nepal, we need to be able to remit money back.
In the case of tourism, tourists who come to India and visit cities like Agra, Delhi, Jaipur can go to Kathmandu. It is because connectivity from Delhi to Kathmandu is better than from any other city in the world. In travel and tourism, there are a lot of prospects.
Similarly, another key sector is clean and green energy. There are global investment organisations that come to us and show their interest in promoting green energy. Money can flow into Nepal in clean and green energy if good governance is strengthened. The government has to be liberal and stop distrusting entrepreneurs. In an economy, trickle down does not work and we have now figured out that small enterprises can greatly help make countries like India and Nepal rich.