Morpheus describes itself as "a gang of serial entrepreneurs and around 40 startup founders" who are "trying to make a small contribution towards India's startup revolution." The venture aims to fill the gap in early-stage financing with a decidedly hands-on approach. Is it a fund, an angel network, or an incubator? Are these labels even still relevant? What segments does it focus on? What is early-stage innovation in India like? We spoke recently with Indus Kaitan, a Valley entrepreneur who returned to India as a Morpheus partner. Read on and listen to find out more about the early-stage scene in India.

Listen to the Interview

Download the MP3.

Two Things to Know About Morpheus

How much equity do you take in each company?
"We take an equity stake of 4 to 8% in each of the companies we engage with as part of the business acceleration program."

Do you invest money in companies?
"No. Currently, we do not make any capital investment. We work alongside you as a co-founder, and we invest sweat capital and intellectual capital in the portfolio."

In other words, Morpheus is an incubator (the team calls it an "accelerator"), not a fund. If you need cash, find it elsewhere. Morpheus is okay with the label "Like Y Combinator, but without the cash." That makes sense, because cash is not what makes Y Combinator interesting. Also, as Indus explains, very few people in India are willing to work purely for equity, without cash. Morpheus is willing to do that. It invests time and experience for equity.

Our Questions and MP3 Guide

Question: How is early-stage financing doing during this downturn compared to the last one in 2001/2002?

Skip to 2:24 in MP3
Summary: Investment during the last six months is down 58% from a year ago. VCs have moved to later-stage, leaving a real gap in early-stage financing.

Question: How is the VC model changing, if at all, and how does the global financial crisis impact this change?

Skip to 5:30 in MP3
Summary: VCs in India are investing in profitable businesses, even in publicly traded companies, because they need to juice short-term returns, leaving early-stage financing in trouble.

Question: What percentage of your investments targets a local or regional market as opposed to a global market?

Skip to 11:00 in MP3
Summary: Morpheus does local plays in India. It had tried global plays from India, but unless management and marketing were in the US, you missed that critical local nuance.

Question: If costs are lower in India than in the US, how is this reflected in the amount of funding required?

Skip to 14:48 in MP3
Summary: Funding is not lower and may even be higher because people won't work for equity as they do in the Valley.

Question: What market segments excite you today?

Skip to 19:30 in MP3
Summary: Health care for the mass market in India.

Interesting Portfolio Companies

Vericar does used-car certification and appraisal, catering to the used-car market in India, which is at a million units every year.

Robots Alive is the second company in India to have manufactured a robotics arm from the ground up. Costs were around $15,000, compared to an imported version that cost around three times as much.

Listen to the Interview

Download the MP3.