Investor / Entrepreneur – Who is the horse and who is the cart?

The Indian startup eco-system is around 10 years old and the two main constituents of this eco-system are – professional entrepreneurs (*1) and investors (angels / VCs). The growth in numbers in both these groups has been quite phenomenal; specially in the last 2 years. But despite the rise in numbers, we have not seen enough number of successful startups, that either have achieved high revenue numbers or have achieved attractive exits.

This issue of creating successful startups is very closely related to the business model of my current venture – The Morpheus, so I think about it a lot. While there are a number of important issues that need to be addressed, one key issue is the dynamics between Investors & Entrepreneurs. And there is a big fallacy in the way the two parties view each other.

  • Fallacy: Investors are the horses and Entrepreneurs are the carts 
  • Truth: Entrepreneurs are the horses and Investors are the carts

For real progress to happen the horse should come in front of the the cart and pull it forward. If by mistake the cart comes before the horse – there wont be any significant movement, as the horse will be pushing from behind. This fallacy is today plaguing most entrepreneurial ventures – funded and non-funded and hence little success has been achieved in last 10 years.

Majority of the folks believe that the Investor is the horse and the entrepreneur is the cart. Why? Because the investor is the source of  money – which is believed to be the starting point. And actually it looks pretty logical – you do need money to get started. But if you look carefully you can see that this thought process is entirely wrong. In reality its the entrepreneur who is the prime mover in a startup – he is the horse. Everyone else – angels / VCs / accelerators/ incubators are the various forms of carts and the carts need the horses to pull them and not the other way around.

This fallacy is leading to a bunch of  problems in the Indian eco-system and hence we have not made much progress in creating real start-ups that execute the classical path of – bootstrap / build great stuff / raise money / keep growing / raise more money and reach the finish line with an exit or start making serious revenues. If you look closely at the 10 odd year history of start-up investments in India – there are no profitable exits to show – except Makemytrip. (I am of course not counting the PE stage investments done by some venture capital firms). I believe the main reason “lack of startup performence” is the same fallacy.

“Cart” type Entrepreneurs  

  • 90-95% of folks who plan to do start-ups believe that they are the cart and so they need horses (Investors) to get them started and unless they get an Investor pretty early (or even before starting) they really cannot make much progress
  • These people spend a lot effort looking for funding during the initial days of the start-up
  • Which essentially means they are not putting all the effort into building the product or doing sales
  • As a result most of these start-ups make poor progress on two most important aspects – product and sales and eventually die 
  • Some of them actually do manage to raise money because of their Miss India type backgrounds 
    • Ex-CEO of so & so company
    • Worked at top tier consulting firm
    • Alumni of certain institute
    • And other such reasons 
  • Since these guys haven’t build anything great before they raised money, and now they believe have found the horse which will pull them – they become complacent. Such investments don’t really pay off the investor or the entrepreneur.

Me and my co-founder, Nandini, were in the same category of “cart” entrepreneurs when we were starting madhouse. We spent the initial months creating B-plans / spreadsheets / projections / market study and all that jazz, spent couple of months meeting the investors. We would have died in that Chakraviuh. But were extremely lucky to have a great mentor who helped us see truth – which is “If you build something great, money will find you“. That is when we realized that we come first – we are horses. The investors come later.

“Horse” type Investors

  • These are investors who believe they are the horses and whomever they fund is only a cart
  • So who they invest in does not matter that much since they believe can pull the cart to the finish line
  • In this mindset they end up funding all kind of wrong folks who also believed they are carts
  • So you have a cart (investor) who thinks its a horse and tries to do a lot of pulling – of course with no visible results and a potential horse (entreprenuer) who thinks its a cart and hence doesn’t pull – and the result is disastrous anyways
  • We see many such deals happen around us and often wonder “How come these guys raised money?”
  • Just after the deal happens there are celebrations and the founders feel they have arrived and get on with the job of burning the cash. For a while no one notices and some time later the companies die because of lack of progres
  • Many investors get fascinated by trends and start believing this is where the next big company will come from. And following the horse mentality they look for start-ups in that domain and even tell entrepreneurs whom they meet to change their business & go after this trend
  • Now when these guys meet the real entrepreneur – who knows he is a horse – they fail to recognize the opportunity and pass on the deal

All through my madhouse days we were being told by would be investors with a lot of authority about how we should build our business. Just before I started Morpheus I was asked by a couple of guys to “start something like mGinger” which was a heavily contested deal at that time – but has been long forgotten

Who can fix things? 

“Horse” type entrepreneurs

  • We need more entrepreneurs who know that they are the horses and hence take the ownership of pulling the cart – which includes the business and the investors
  • They start their journey as a young horse, gain strength and speed along the way – they become strong horses
  • Irrespective of whether they have  cartsc(investors) or not they win their races

“Cart” type investors

  • We also need more investors who clearly understand that entrepreneur is the horse / the prime mover / the creator
  • They respect the entrepreneurs and look for horses that have the potential to run a long race and win
  • They look for horses that have shown promise in the race so far
  • They do not try to manage the show but provide the right kind of support

We already have a few folks in both of the above categories. They are doing their respective jobs silently & do not really make much noise. The real trend is on their side. Eventually their successes will correct the fallacy and I am sure India will produce a great percentage of good quality, successful start-ups and good quality investors who invest in those start-ups!


1. Professional entrepreneur is someone who has gained knowledge & experience through education / work and he combines that with his intelligence, passion, hard work to create a venture.

Purani jeans aur guitar

Purani jeans aur guitar
Mohalle ki vo chhat
Aur mere yaar
Vo raaton ko jaagna
Subah ghar jaan
Kood ke deewar
Vo cigaretee peena
Gali mein jaake
Wo karna daanton ko
Ghadi ghadi saaf

A group of startup founders sang this college time favorite song during the starry, drunk, passionate and bindaas late night sessions, that went on till 0300 am every night, during Morpheus’ Startup Gurukul. Gurukul was organized with the purpose of bringing together the gang of morpheus founders at one place for 4 days of immersive experience. Away from the normal world, away from their hectic day-to-day schedules – just to hang out, share learnings and to know each other. The sheer energy in the atmosphere was intoxicating.  People were – talking, dancing, asking questions, listening intently, showing demos, discussing stuff , giving/ taking feedbacks, taking pictures, fooling around, jumping into the pool. But with all this as a backdrop they were all starting lifelong friendships – with folks who are also weird like themselves, those who have chosen the uncertain path of entrepreneurship – leaving behind the certainty & security of jobs. Because nature has cursed (or gifted them) them with the “entrepreneurial gene”. Be an Entrepreneur or Die – thats their calling. Just can’t do anything else. Gurukul is a world in which everyone is an entrepreneur – everyone inspires you, everyone believes in your audacious vision and the non-believers are totally absent.

I still remember the day we started the journey in Jan 2008 – 2.5 years back. Coming out of our 3 yrs as the founders of madhouse, we realized that this was badly needed in India and we had a kind of stupid confidence in our ability to figure this out. Most of the folks around said you guys can’t do this / this cant be done in India or some variation of a negative comment. Like all entrepreneurs – every time someone said that it increased our determination to crack this.

From the Starting point to the Startup Gurukul – the ride has been a lot of fun but at the same time quite rough, things have moved a very rapid pace, there was always so much to do, so much to figure out, so many moving pieces, we just kept working 12-14 hrs everyday.  I never got a chance to step back and look at the overall picture. So at the Gurukul when I saw, at one place, all portfolio companies, all founders, our investors – and I saw people from outside morpheus who came to spend time with us, said nice things about what they saw. I had this realization that we are on to something important, we are starting to have a small impact on Indian Startup Ecosystem, our efforts are paying off. This has given me a lot of energy to keep doing this for many more years to come.


On behalf all partners @ Morpheus I would like to give a big Thank You to all the founders in the morpheus gang – for making us part of their teams, their dreams and their families. Thanks guys for believing in us – for taking the chance. Together we can and we will change many things in the world around us.

Also a very big thanks to guys @ Sequoia Capital for supporting and sponsoring Startup Gurukul.

Enjoy the gurukul pics

First time entrepreneurs (FTEs) – Building businesses in India

Just read the couple of articles written by Paul Graham : Y Combinator (answers what exactly does YC do?  or  Seedcamp, Techstars, MVP etc ) and Equity (explains why should you give 5-6% equity to a program like YC)

The thoughts expressed got me thinking about how should First Time Entrepreneurs (FTEs) go about building businesses in India. While a lot is in common between the approaches of YC, SC and MVP there are a bunch of things unique to the Indian Ecosystem which FTEs should consider.

Uniqueness of India

First things first, only during the last 10 years India has started seeing bootstrapped or garage startups by talented, educated, experienced and passionate folks who dont have access to a lot of capital but have the skills, will to solve problems and the staying power. The number of successes out of these have been limited and have not been really publicized for folks to get inspired by or learn from.

The VC industry is just about 8-10 years old in India as compared to 50-60 years in US and Europe; among them majority of the funds in India are under 5 years old. VC being a long gestation industry we are a good 5-10 years away from seeing major VC success in India. Most of the firms are focusing on the existing pipeline deals in the market and there are quite of few of these available – companies by serial entrepreneurs, companies started by Executives (CXO, VPs) from large companies, some of FTE companies where the traction is fairly significant, also since PE sector has performed very well and the bigger funds are shifting time and money to PE  deals. Clearly all of the above are the right things to do for the Indian VC firms, since the firms need to perform for their investors. None of this directly supports the FTEs, which is where the gap that needs to be filled in.  We need to create new pipeline of deals that will become successful startups and will feed into the VC pipeline 1-2 years later. That’s the role folks like MVP, iAccelerator, and others are attempting to play.

Another dimension of difference is IT / internet. The penetration of Internet and PCs in India is quite limited (9 computer for every 1000 people, as compared to 700 for every 1000 in USA). On the other hand the awareness and usage of IT in companies, specially SMEs is limited as well. There are a lot of other fundamental needs to be fulfilled in India (remember we are a developing country).

FTEs in India: What to focus on ?

First thing to ensure is to build a cash flow positive business within the initial capital that you have managed to raise (self, friends, family, fools). Keep lowest possible costs and create early revenues. Expenses should ideally be below 50,000 INR and in no circumstances higher than 1,00,000 INR a month.

Dont think of funding as a validation for your venture. Be prepared to wait longer, to build your business to the 50-100 crore revenues in 7-10 years, with VC funding coming after 2-3 years of being in business or no VC funding at all. If this does not appeal – don’t do a startup.

Internet only business models targetting indian market are not going to viable for atleast 2 years ( or more). View internet as a cheap way to build products and get the initial users with zero marketing budgets. From day one build alternate channels : mobile, call center, SMS, kiosks , shops , sales team into your model. Use technology as a enabler to drive costs down and to drive quaity upwards, but do not depend on customers using it directly via internet.

If your idea only lends itself to internet, think about doing it for developed markets like US and Europe.  India still has lower costs and we are very bullish on build here – sell to the developed world model.

So while you take into consideration the universal wisdom of building businesses, paying attention to the uniqueness of India can make an big impact on the outcome of your venture.