Exclusive: Kerala Start-up village a money-making front for realtors alleges former IT Advisor, Mobme denies

MobMe founder Sanjay Vijaykumar takes on the allegations upfront

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Joseph C Mathew IT Advisor to former Kerala Chief Minister recently called for a white paper on the Start-up village (SV) in Kochi.

Mathew believes that Technopark Technology Based Incubator (TBI) being renamed as Kerala Start-up Mission is a mere bail-out mechanism for the private players involved to lay the blame (for coming up with an unsustainable model) on public shoulders.

Speaking to The News Minute, Mathew challenged MobMe Wireless Solutions Limited which set up the Kochi SV in a tie-up with the National Science & Technology Entrepreneurship Development Board (NSTEDB), the Department of Science and Technology (DST) and Technopark TBI to come clean with regard to their shelved Initial Public Offer (IPO) plans and make it public.

Mathew alleges that the Kerala-based mobile technology company which is widely considered as the brain behind the Kochi SV –the country’s first Public-Private Partnership (PPP) telecom business incubator- in the Kerala Industrial Infrastructure Development Corporation (KINFRA) Park at Kalamassery in Kochi actually serves as a mere front for realtors to rake in the moolah.

“An initial fund of Rs.2.5 crores was paid for the setting up of the Kochi SV. When I googled for further details, I found to my shock that the money was paid into the personal account of Jose Pattara in Cherthala.”

With stakes in retail financing, trading, real estate and various other business interests, Jose Pattara is incidentally the first investor in MobMe (initially named Torque) which was founded in 2006 by engineering students Sanjay Vijay Kumar, Sony Joy and Vivek Steve Francis and incubated as a student company in Technopark in Thiruvananthapuram.

Sanjay Vijay Kumar reacted to Mathew’s allegations and in an e-mail interview to TNM said: “An IPO is filed by a company with a stock exchange to raise cash by selling shares. MobME filed its Draft Red Herring Prospectus with the National Stock Exchange. It is to be noted that this filing was for the newly launched Small and Medium Enterprises (SME) exchange. One of the conditions in SME exchange was that company had to dilute minimum 25%.”

Sanjay says that since they needed only Rs. 15 crores at that time, they were faced with a conundrum of having to raise Rs. 25 crores for 25%, which he termed a very high and unnecessary dilution.

That was when private investors who were planning to buy the IPO reached out and asked for a private placement, putting in Rs. 16 crores, thereby allowing them to shelve the IPO plans.

The Ministry of Corporate Affairs was -Sanjay said- also apprised of the same.

On the allegation that Mobme was a front for realtors, Sanjay said “Isn’t the folly in the allegation that it’s a real estate deal evident to one and all, when in reality, we are completely out of even allocating physical space to start-ups?”

About why money meant for the Kochi SV was paid into Pattara’s personal account, Sanjay said: “Jose Pattara paid Rs. 80 lakhs to have shares issued like any other shareholder of MobME. Any person or entity that puts money gets shares as per rules of Ministry of Corporate Affairs. The Government of India too is a five percent shareholder in MobME.”

Mathew refusing to give up his line of argument says: “Kerala was one of the first states in the country which set up an IT park mainly as an incubation centre. Technopark served as the place where small companies could take shelf-space and subsequently evolve into actuals on ground. Then why the need for a separate SV in the first place?”

MobMe –according to Mathew- owes it to the public to justify the use of government land and public funds while the profits are actually divided between private players.

MobMe had raised 3 angel round funds of $200k in December 2006, then $200k in June 2007 and $3Mn in January 2014. MobME is the first IT company based in Kerala to raise $7 million Venture Capital (VC) funding from Sequoia Capital.

“We take great care of our financial and legal filings and are audited by a Big 4 auditor Deloitte to file annual returns to the Ministry of Corporate Affairs on time. The company has paid over Rs. 25 crores in central and state taxes cumulatively since 2006. A Silicon Valley VC fund does significant legal and financial due diligence before investments as they deal with international investors. Credible people like Kris Gopalakrishnan have supported Startup Village on its philosophy and mission,” Sanjay said.

Former IT Secretary Dr Ajaykumar had sanctioned a Rs. 50 crore electronics incubator to the Indian Institute of Information Technology and Management-Kerala (IIITM-K) with Kochi SV as the partner. MobME has won innovation awards from Nasscom in 2006, 2007, 2009 and 2012. It has till date employed over 150 people.

When asked to comment on the alleged bail-out mechanism now in place, Sanjay shot back: “It's a well known fact that Venture Capital (VC) funds approved by SEBI have a ten-year life cycle. Incubators come before VC. Thus they tend to have an increased life cycle. Incubators with product start-ups take even more time as the start-ups themselves take around three to four years to generate revenues. Seeing the successful PPP model of the Kochi SV, Start-up India Action Plan by PM Modi has recommended converting 35 existing incubators into the PPP model and starting anew.”

Sanjay says his claims are backed by an independent report on Kochi SV by IIM-A economics professor Rakesh Basant and a 1000-day report of performance with source of funds and expenditure that had also been released publicly to everyone.

Responding to allegations that it was due to the screening process in Kochi SV being a lenient one that allowed Start-up village to reach the target of 48 start-ups before time, Sanjay had this to say: “This was the target fixed and approved by Dept of Science and Technology (DST) to incubate within 5 years. The incubator programme is a standard scheme by DST, GoI. The scheme document is available online. Around 70 TBIs have been approved under the scheme till date.”

The PPP model of Kochi SV was the first of its kind in India. It was voted by GoI as most successful TBI of 2015. Andhra CM Chandrababu Naidu selected MobME to setup the Startup Village in Vizag.

The way startups at SV overcame the fact that there were no VCs in Kerala by raising crowdfunding internationally is now a case study taught at IIM-A, a copy of which Sanjay said he would be more than happy to give The News Minute, as it described how an ecosystem was build where there wasn't any.

Asking Sanjay to elaborate on their shift to the virtual space, he replied: “Udacity and Coursera are digital models of education that teach millions of students. The physical space of Kochi’s SV has been 10000 square feet since 2012, while at end of December 2014, it had 7000 applicants. Going digital is a natural way to scale just like Flipkart. You could check out www.sv.co and see all the data which is accessible to the public.”