My Worst Investment Ever Podcast Mahesh Murthy – Trust but Verify Startup Founders
BIO: Mahesh Murthy has helped launch Amazon, over 60 startups, a few hundred brands, and a few satellites. He’s a marketer, entrepreneur, and investor.
STORY: Mahesh invested close to $400,000 into a startup only to discover that one of the founders was siphoning money via his sister and mother.
LEARNING: Verify startup founders before investing in them. Hire someone to monitor your investments if you cannot do it yourself. Invest in a minimum of 10 startups instead of just one.
“Never give your entire investment to one person.”
Mahesh Murthy
Guest profile
Mahesh Murthy has helped launch Amazon, over 60 startups, a few hundred brands, and a few satellites. He’s a marketer, entrepreneur, and investor.
As a marketer he:
- Worked on Amazon, Pepsi, and Nike
- Helped launch MTV and its rival Channel V.
- Founded ad firm Pinstorm.
- Wrote ads, including ‘Asia’s best ad of the decade.”
As an entrepreneur he:
- Failed in his first three ventures.
- Is taking a company public soon
- Has taken another into space: Asia’s first private firm to launch satellites
As an investor he:
- Has run three venture funds
- Was voted India’s “Best VC of the Year.” Twice.
Worst investment ever
Mahesh was lucky to be in the US at the start of the Dotcom revolution working at one of the early digital advertising firms in Silicon Valley. He read about a small startup in Seattle that wanted to sell stuff online.
Mahesh went to his boss and told him about the startup, but he dismissed him. But he prevailed, and finally, the boss allowed him to meet the startup’s founders. The startup was Amazon. Mahesh started working with Amazon, and in the process, he learned a lot from Jeff Bezos.
After a few years, Mahesh decided to return to India and take his e-commerce knowledge there. He also started doing a lot of angel investing. Through this, he met two founders who wanted to teach students outside India online.
Mahesh was very excited about the idea and was ready to invest. The two founders hired teachers, and the teaching started. Mahesh was pretty much hands-off and would write a check every three months. The founders would update him on the progress and insist they had everything under control.
Soon, Mahesh noticed the company was spending so much money renting computers and an office space bigger than necessary. He kept asking why the founders were doing this instead of buying the computers and renting a smaller space. The founders insisted that they just wanted to be flexible and not invest in assets they knew nothing about. Mahesh just bought into all this.
Finally, after about two years of pumping so much money into the company without much progress, Mahesh decided to look deeper into how things were running. He went to the office, and while looking at the financial books, he noticed that the people renting out the computers and the space were related. He dug a little deeper, did a few Google searches, then figured out that the computers belonged to one of the founder’s sisters and the space belonged to his mother. This partner was taking a chunk of money from the company and putting it into his own pocket through his mother and sister. Mahesh was incensed. When he asked the founder about it, he exited the company. When the second founder heard about it, he also left the company.
Now Mahesh had very little money left, a company with no leadership, about 25 staff, and no customers. He and his partner jumped in and did what they could to find some customers, paid the teachers full pay, and slowly let them off.
About two years later, they sold the company to another company building an education giant and got some shares in it. Up to that point, Mahesh had invested close to $400,000, and he only managed to get about $40,000 back when the new owners took the company public.
Lessons learned
- Nobody’s a good judge of character, so don’t trust people blindly.
- Being hands-off may be easy and fantastic, but it won’t help your investments.
- Ensure all the paperwork is correct and your tax is done correctly.
- Hire somebody who will track and monitor your investments if you cannot be hands-on.
Andrew’s takeaways
- If you’re going to invest in startups, invest in 10 startups, not just one.
- Monitor your investment regularly.
- Get your complete financial statements, balance sheet, and income statement monthly and hold a monthly meeting to review them.
Actionable advice
If you’re investing in a startup, hire a chartered accountant who will look deep into the books on your behalf. Additionally, put the systems in place to monitor your investments so you don’t get scammed.
No.1 goal for the next 12 months
Mahesh Murthy’s goal for the next 12 months is to launch more satellites and segments.
Parting words
“Trust but verify.”
Mahesh Murthy
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Connect with Mahesh Murthy
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points