Bangalore: When Milind Katti , a Pune-based sales professional, was attempting to develop a software product that could potentially help enterprises manage their customers efficiently, he did not seek meetings with the usual investors that wannabe entrepreneurs chase. Instead, Katti sought the help of a friend who worked at Mu Sigma, a data analytics firm that has a valuation of around $1 billion, to get an appointment with founder Dhiraj C. Rajaram .

The idea was to seek help from somebody who knew the space well, and had real insights about developing a product to manage revenue streams from large, Fortune 100 customers.

In November 2011, when Katti first met Rajaram, Mu Sigma had less than $100 million in revenue. It counted Pfizer Inc. and Microsoft Corp. among its top customers.

“I asked him if having technology tools for account management was a key pain area for him and he asked for more details," said Katti, who has spent more than 15 years in sales.

Rajaram asked Katti to meet him at his office on a Thursday afternoon in November 2011.

After listening to the idea, Rajaram offered to put in half the money, some ₹ 20 lakh, in building a software product from scratch.

“I listened to him, and liked the idea because it addressed a genuine problem," said Rajaram.

Katti put in an equal amount and was promised access to real account management experience across different projects at Mu Sigma. A pure venture capital investor could never have matched the value offered by Mu Sigma—of learning from real-time projects and building a product alongside.

“The twist is that here the angel investor is a successful entrepreneur, allows access to validate and build the product closely at his company and deeply understands the problem we are solving through the product," said Katti.

Rajaram also introduced Katti to a dozen professionals in the industry who dealt with customer account management problems that none of the existing products solved effectively.

Katti, who had co-founded outsourcing firm QED Baton in 2000 with Abhijit Gangoli, decided to spend all the time with the new firm being incubated at Mu Sigma. In February last year, he registered a company called Demand Farm Solutions Pvt. Ltd.

“The big challenges for a start-up are idea validation, customer development, initial funding and the right advice. We were able to meet all of them with this kind of arrangement. Therefore, this model is not simply about ‘funding’ a start-up," Katti said.

He, however, did not rule out raising more money for expanding Demand Farm from traditional venture capitalists (VCs). “That being said, VCs will have a role to play in future...in Demand Farm as we go further in our journey."

Katti is one of a growing tribe of entrepreneurs tapping potential customers for jointly building products and even raising seed money.

Demand Farm, for instance, has scaled up to around 200 users at Mu Sigma responsible for managing dozens of customer accounts. Some customers, who enter early in the game, start feeling left out after the start-up scales up, experts said. “They invest because they feel, ‘They grew on my back, so how do I retain some engagement even after scale up?’," said Ravi Gururaj, chairman of the Nasscom Product Council.

Rajaram and several other angel investors have now invested around $1 million in Katti’s firm and hold 40% of the equity.

More than money, enterprise customers are able to help start-ups build products that address real problems. “It is an age-old tradition. Start-ups need to lean on customers for requirements, investment, credibility and reference accounts, while customers like to know that they can have a solution to a pain, they sense value," said Gururaj.

In a similar example, former Infosys Ltd executives Arun Ramu and Rajinder Gandotra were mentored by former chief technology officer of ICICI Bank LtdPravir Vohra. Ramu and Gandotra founded Avekshaa Technologies Pvt. Ltd two years ago, offering ways to make different enterprise solutions work together.

Vohra helped them understand potential problems that their product could address by becoming Avekshaa’s first customer. With revenue of ₹ 4 crore in the year ended March, Avekshaa aims to become a $100 million firm in five years.

“An anchor client is always important in the journey of a company. Initial endorsement from a customer like Pravir was extremely important as it was reaffirmation of our business idea. This also helped in gaining further business as we had a reference project we could talk about with our client," Gandotra added.

To be sure, entrepreneurs need to be cautious in enlisting potential customers as investors, some companies tend to give away too much exclusivity in a hurry, which shackles future growth.

“The biggest challenge is keeping the product relevant for a larger customer base and not just one customer," said Katti, who moved with his four-member team to Bangalore from Pune last month.

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