Startups are all together a different breed and investing into them is also a different game. It is said that startup investments are for those who want to take bigger risks because winners can gain big time while the losers can lose it all, but if you strategize well you can surely benefit and be a part of the money minting and immensely satisfying sector.
Right now, there are many options in the Indian market, through which one can invest in a startup. These include startup funds, angel investment, investment banks and investment opportunities at the incubation centers of educational institutes.
Earlier there was no opportunity for Indians to invest in a startup fund because most of the funds investing into startups were abroad. However, considering a boon in this space, they have now set up their offices in India as well.
Apart from these options, there are many like-minded people who have come together to form small VC funds and are looking to associate themselves with startups. Some of them have fared well too.
You may choose any option but the core thing is to identify the right startup. You should ask yourself what kind of investor are you?
Whether you are a risk taker or a conservative one, although the level of conservatism here is different from other investment instruments, you definitely have a way out and you can choose to pick one as per your risk appetite.
An early stage Startup with just an idea carries the biggest risk while the one with a prototype or clear revenue model or a team of seasoned executives would have a lower risk, but there are many factors on which your money making target will depend.
Identify the right Startup
While deciding to invest into a startup, try to understand the domain of the venture, as it is always better to invest in a domain you understand. The model should be scalable to reap benefits in the long run.
Find the track record of the founders and understand the company’s monetization strategy. Learn about the competitors and the market condition, investigate the financials and make sure you know exactly where your funds will be utilized.
In case you are not self-sufficient to do these tasks yourself, you can have advisors or funds who have the expertise to do so. Always look out for – their portfolio, investment team, investors on board, the stage the startup is at, stage of funding (whether Seed, Series A or B etc) – before choosing the one.
First of all, make sure you don’t need the money that you have set aside for investment for atleast 7-10 years. Startups do not yield results in a short time frame. Try to understand the risks involved and the potential returns to decide on the amount you would like to invest.
Also look at the market condition of the sector in which you are investing to know whether the valuations are okay or blown out of proportion. Knowing when the startup was established and the stage at which funding is being done matters a lot as far as your return on the investment in concerned.
Exit Strategy should be right
Your investment will have no meaning if you don’t have an exit strategy in place, since you will get your returns only after your exit or when the company undergoes a liquidity event such as an acquisition. Therefore, it is paramount that you strategize your exit.
Find out the plans of the startup you are investing into – whether they would like to go for an IPO, have an intention to get acquired by a bigger company, or want to keep the company private and run it themselves.
All these plans will have an impact on your exit from the company. So, analyze whether their plan is feasible or not and make sure that you have your exit strategy to place.
I would like to conclude here that there are no real right and wrong decisions as far as investing in a startup go – there are only informed decisions. And sometimes, just a generous dose of sheer luck 😉
If you are someone who has got the right appetite for risk and have made up your mind to be in the game for the long haul, then startup investment is apt for you. But do not forget to take a 360-degree approach in examining various aspects of the company you are going to invest in, if you want to take a slice of the pie.
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