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Startups have become the talk of the town. Recently, Chennai-based Startup Pepul raised Rs 10 crore investment through seed funding. PayTm founder Vijay Shankar Sharma and Freshworks founder Girish Mathrabootham were prominent investors. PayTm and Freshworks are also startups which succeeded in a big way. Angel Investment or startup investing is a trending subject as startup culture is growing in the state.
How lucrative is it to invest in startups and who could invest in startup ventures? Sivarajah Ramanathan, CEO of TANSIM (Tamil Nadu Startup Innovation Mission) shares his insights with Inmathi.
Traditionally, an individual invests the excess of his earnings in various investment options like real estate, gold, mutual funds, fixed deposits which is called Asset Class. Share market investment is another option. Each investment comes with a risk factor. An individual who does not want to take risks puts his money in fixed deposits or in gold. Share market investment is an option with higher risk.
Investing in startups is an emerging trend. It is a new age asset class while the rest are existing or old-age asset classes. Technically, there is no big difference between investing in companies in the share market and startups. In the share market, we are investing in publicly listed companies. In startups, we invest in private limited companies.
Legally, 200 people can be shareholders in private limited companies and these companies won’t be listed in the share market. The company will be valued and the shares could be bought at the premium rate. This is what we do technically in startup investing.
In the traditional method, we would assess a company’s physical assets, balance sheets and goodwill to fix a rate. In a new age startup, the idea and business model or the chances of the business model scaling up are all weighed. How quickly the idea would grow? How will the idea harness technology? Does the founding team have the right capacity to scale the venture? Swiggy, Redbus are some popular examples while in Tamil Nadu we have ChaiKings, Tendercuts, BankBazaar.
Investing in startups is an emerging trend. It is a new age asset class while the rest are existing or old-age asset classes.
Startups are scalable ideas that could merge with technology. Innovation is not just technology. Who would solve the problem first or better the solution already provided? All these factors are considered.
Ice-cream or coffee has been there for a long time. But Arun Icecreams and CoffeeDay are innovative ideas of offering an experience with that ice-cream and coffee. It is not always technology but the concept which matters most. If the idea is innovative, it would grow. Startup investing is finding such innovative ideas and funding them.
It sounds nice but the probability factor of a startup succeeding is very dicey. It is very volatile. At least in the sharemarket, we would have a track record and the reputed companies would have created a trust factor. But startups are different. At the first level of angel investing, it would be mostly youngsters starting new companies and investors would, in fact, be the board of directors to guide these youngsters. Then angel, venture capitalists come in based on initial success.
Successful companies then turn to private equity and turn into big companies with public listing. A startup may fail or succeed. If we invest in ten startups, three may fail and three may remain as micro companies while two or three become extremely successful.
It sounds nice but the probability factor of a startup succeeding is very dicey. It is very volatile.
The returns can be realized from the successful startups. The money invested in failed startups vanishes or stays intact in micro ventures.
It is an emerging culture growing across the world. It is an interesting thing to invest, watch and journey together in startups. But who could invest in startups?
It is not ideal for people expecting 100 % assured returns from their investments. It is a very high risk investment. It is ideal for people who have high disposable income and invest the excess in high risk ventures or give it to charity. Not all people have that attitude of disposable income even if they make so much money.
Angel investing is not ideal for trading people or the ones expecting an interest component on their money. It is ideal for people who have the mindset of manufacturing something new, long-term investment planning and with a social cause of supporting young entrepreneurs.
In addition to it, SEBI guidelines say that an individual angel investor should have Rs 2 crore personal net worth excluding his/her currently residing house.
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