Going by some old-fashioned rules of investing, two small-time angel investors have racked up a dotcom portfolio that might actually pay.

By Abir Pal  

We don't have an office of our own,'' says Mahesh Murthy, settling his full frame into a chair at Mumbai's 'Just Around The Corner' eatery. That's not by way of an apology, but introduction. ''In fact, on the few occasions that I need to meet people this (place) functions as my make-shift office,'' says the 35-year-old promoter of passionfund.com, an angel investment firm that has a 'world wide staff' of two: Murthy and his partner Arun Pai.

For a man who's helped launch Amazon.com, Yahoo.com, espn.go.com, and msn.com, among others, Murthy has none of the de rigueur dotcom trappings. On this occasion, he's dressed in his trademark round necked T-shirt, chinos and leather mocassins, and is clutching onto a Nokia mobile phone. He doesn't boast of a Harvard MBA; in fact, he is an engineering school drop out who plans to get the degree 'before he turns 50'. He doesn't have a head for numbers (Pai does, though), but can tell a lousy business plan from miles.

Which is why it is no coincidence that of the 14 startups that Murthy and Pai have funded in the past 30 months, not one has downed shutters-not yet, at least. In fact, two of them are already profitable, and eight more of them are expected to break even variously between three months to a year (See Passion's Portfolio). So what makes Passionfund-propped up by Murthy's own money (he won't tell how much)-a survivor in dotcom's jungle of death? ''We only invest in companies that have powerful, original ideas...we realised long back that in today's business arena there's no future for an also-ran,'' says Murthy.

Skinflint-Angels

That's for starters. There are a handful of other investing rules that Murthy and Pai live by. For one, Passionfund never invests more than a couple of lakh of rupees in any one start-up. Typically, its investments range from Rs 40 lakh to a little above Rs 1 crore. The rationale: the money should fund the business idea, and not the lifestyle of the venture's top team. The most that the fund has doled out is Rs 1.35 crore for an undisclosed stake in Compassbox.com. Explains Pai: ''In some ways, we're still very conservative and old-fashioned. We believe that a business has to be self-sustaining. In fact, we only put our money into businesses that we're sure will at least break-even within a year.''

That's what Easybuymusic.com was told when it approached Passionfund early last year. Everything looked perfect with the business plan: the idea made sense, the operations were lean, and there was a clear revenue model, too. But the fund wanted the break even year to be pushed ahead. Sure, it meant keeping a manic control on cash burn, smarter negotiations with vendors, and aggressive marketing, but it ensured fiscal discipline. Says Chris George, CEO, Easybuymusic.com: ''A good angel doesn't just fund you; it drives you constantly, too.''

Another thing that the two angels of Mumbai are particular about is the commitment of entrepreneurs. As a rule, the duo steers clear of managers who look at a venture only as a means to get rich quick. Most of the entrepreneurs that they have funded are executives with solid corporate experience and skills. The result? An enviable portfolio of firsts such as indiaproperties.com (a real estate portal) and iVast.com, an interactive television platform company. To ensure that its dot-properties pay off, Passionfund picks only those whose business models which it feels are scalable to a global level, but at low Indian costs. Says N. Subramaniam, Partner, Baring Private Equity Partners (India): ''Murthy's a smart marketer, and doesn't hesitate to demand his pound of flesh from the ventures he funds.''

Virtual Mentors

Yet, more than the money, it's the years of experience they bring to their deals that makes them invaluable. Murthy is very much a marketing and creative man, having helped launch Channel V in India and done stints in the Far East and the US. Pai, on the other hand, has a firm grounding in corporate finance, thanks to his years with firms like Arthur Andersen. Says Easybuymusic's George: ''Passionfund has been working closely with us in building up our brand and refocusing our marketing strategy.''

In the case of Murthy that has meant a lot of handholding. For example, Hamarashop.com is today an online franchisee for a number of leading Mumbai retail stores. Says Kiran Kulkarni,Director, Hamarashop.com: ''Not only has passionfund been helping define our business model but also arrange tie-ups with many of the 100 shops we have partnerships with.''

Agrees Rajan Nair, CEO, Compassbox-a website that specialises in providing on-line help to school children preparing for their CBSE exams: ''Positioning is very important when you're operating in such niche markets. I think we've been successful in establishing and differentiating ourselves inspite the plethora of educational sites operating. And this is where passionfund's expertise was invaluable.'' In fact, Murthy was instrumental in helping indiaproperties.com switchover its business model from a free listing service to a paid virtual yellow page on real estate.

All the mentoring, of course, is to make sure the investments pay. Particularly now that investors are swearing off dotcoms, and making an exit has become virtually impossible for the funds. The best bet for Passionfund, like so many other funds, is to make the existing portfolio turn profitable, rather than wager on newer startups. Though reluctant to disclose Passionfund's exact earning, Murthy expects his investments to yield returns of at least 500 per cent by the end of the year. And if all goes well, it may actually decide to move into an office. Or, knowing Murthy, it may not.

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