About – How to invest in startups India | [RECENTLY UPDATED] | 2022-2023
Do you know Indian startups raised $16.9 billion through VC funding in 2021? India is skyrocketing in entrepreneur spirit. Global data said that India is next to China in raising funds. Even during the pandemic, venture capital investors funded the startups which boomed the market and started to grow immensely.
So if you are an investor and not investing in startups yet, let me tell you that YOU ARE MISSING the whole new growth market. Wait, did you say yes to investing? I know the FOMO is real. Well then, stay on! To invest in startups, this article will provide every answer to your question on ‘how to invest in startups India?’
Before moving forward, if you’re running a business and looking for ways to get funded for expansion then do check out our article on ‘How to finance a business startup’.
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Table of Contents
What is a startup?
A startup is a private company that is generally 10 years old. The more startups emerge, the more comfort we get. Each startup comes up with extra bennies so that we can lead a lavish lifestyle. Every successful business was once a startup funded by various investors.
What does investing in a startup mean?
In simple terms, investing in a startup refers to buying a share of a particular company. In return, the investors would get equity. Equity means ownership and future profits. Now if the startup succeeds, the investors get huge profits. But, the reverse also happens. If the startup fails, it will face huge losses.
Are you scared that you might lose your pennies? Well, I will not sugarcoat it. But yes, there are high risks involved in the whole process. 90% of startups do fail.
Sorry to give you the bad news, but this is the truth. You should keep in mind a lot of things before investing in any startup. Investing wisely can give an attractive ROI. Heard about Zomato? Let’s peek into Zomato’s case study.
Zomato was founded by two IIT Delhi alumni Deepinder Goyal and Pankaj Chaddah. When they first launched their mobile app Zomato, they needed the funding to carry on their business. Founder of Naukri, Sanjeev Bikhchandani was quite fascinated with their startup.
Hence, he decided to invest in Zomato through Info Edge. He invested approximately $4 million in Zomato. Now you can guess what happened next. Info edge along with Sanjeev Bikhchandani got huge profits from Zomato right from the next year.
Investing is risky. But rewards are precious! Thinking about how to invest in startups in India? While starting, there are many key points to look for in a startup you wish to invest in. Let’s take you through those!
Key points to look for in a startup before investing
Here is the list of 6 key points to look for in a startup before investing –
- The commitment of the founder
When you are investing in a startup, you must look at how committed or passionate the founder is. As I already said, there is no guarantee of startup success. So if the owner is not committed to its business, it will certainly collapse within the next 1-5 years.
As an investor, you are investing a huge amount of money along with your knowledge, time, and network. The founder of a startup should put more time and effort into the business. Additionally, if a founder is self-funding his business, it is a plus point for you. It shows that he is responsible and accountable for the business.
- Business plan
A business plan is what differentiates a good startup from an average startup. Zomato, Amazon are successful because they had a business plan that was viable and practical. Now you may ask, how to identify a practical business plan? The answer is the business plan should solve problems and find a unique solution to stand against its competitors.
Founders of Zomato found out that people don’t like to wait in long queues for a pizza or burger. Hence they identified this as a problem. Subsequently, they launched their app which can deliver food to our doorsteps.
You see, the plan should not just be a mere idea of the subconscious mind. It should be a new and innovative plan to attract potential customers.
- Market opportunities
When you are investing in a startup, make sure that the startup has a market for future growth. There are tons of startups failing because they started without having proper market research.
The startup should know their target audiences, their taste, and preferences, their wants, and needs. Maybe as of now, the startup doesn’t have any profits, but the startup should have a big market size. Having a big market size means an attractive return on investment (ROI) for you as well as for the founders.
When I say large market size, it does not mean that the entire country should opt for a particular product or service. This means the target audience should stick to the new startup idea for several years. Invest in a startup having potential market growth.
- Relevance of the startup niche
The startup you are investing in should have relevance to you. Confused? Let me make this point clear with an example.
Imagine, you are someone with little knowledge about the tech niche. If you do not know tech startups, avoid investing in such startups. You can go for other niches like food, wellness, or any other niches you like. Invest in niches you are interested in.
Now you may ask why is it important? Well, you need to RESEARCH before investing in any startup. If you are not familiar with the tech niche, will you be able to research well in the niche? No, right? So go for a startup whose niche is familiar to you.
- The commitment of the entire team
“Coming together is a beginning, staying together is a process, and working together is a success.”
– Henry Ford
Teamwork, if done right, can work wonders. Therefore you should carefully look at the team members before investing. You should know about the departments, members working in each department, their responsibilities, their working manner, their dedication.
Are they passionate about the business? Are they willing to push themselves every day? Are they doing well in their respective roles? Are the entire operations done productively? Are all the processes completed timely? Are they efficient and effective? If all the answers end with a yes, then you can proceed further.
- Timeframe for profit
You are investing to be a part of the profit. But the profit can come after 2-3 years or even after 7-8 years or more than that! Make sure to know the approx time frame for the profit.
You should evaluate a startup’s burn rate. Burn rate means expenditure per month. If a startup is in its early stage with a high burn rate, it simply means that the startup will take more time to come to a profitable position. If the startup has crossed its early stages, then an average can be taken to calculate the burn rate.
You may have your expectation but the startups may or may not have that particular time frame. So have a rough idea of when the startup can give profits by calculating the burn rate. If it matches your expectation, you may invest in the startup.
At this point, you know exactly how to find a perfect startup for investing. After considering the above key points, make sure to know the rate of return on investment, the process of withdrawal of initial investment along with the gains of a startup(s).
How To Invest In Startups India?
Don’t put all your eggs in one basket. Yes, the same applies to investment as well.
NEVER EVER invest all your money in one startup. This is the first and foremost point to remember while investing. Split your money into various startups. If any of the startups fail, you will still have profits coming from the rest.
And, if any one of the startups rises in the market, boom you are going to get lots and lots of money coming in your pocket! Now the main answer of how to invest in startups India comes below.
Ways of investing in an Indian startup
Here are top 3 Ways of investing in an Indian startup
1. Angel investing
Angel investors are wealthy private individuals investing in small businesses or early-stage startups. You can invest in startups through angel investing.
In angel investing, you will provide capital to startups in exchange for ownership shares. You will have to finance with your net worth. Hence, angel investing demands wealthy people.
You can give smaller amounts to the startups. But the amounts should be for a longer period. When you are an angel investor, you should continue to fund the startups for several years even if the firm has no profits. Usually, an angel investor invests in early-stage startups because early-stage startups need funding for the long term.
Being an angel investor is risky. What if the startup fails? Here comes the main twist. If the startup succeeds, you will get a high rate of return on investment. Generally, an angel investor gets ROI 10 times his original investment.
As the investors are investing with high risks, the expectations also go super high. They get around 10-50% of equity.
You can be an angel investor. There are many angel investing sites in India like:
Check out their sites to know their terms and conditions. Then, start investing.
2.Venture Capitalists (How To Invest In Startups India)
Are you looking for short-term investments and long-term returns? Well then VC is for you. Wealthy investors can invest a bulk amount of money in the venture capitalist firm for the short term. Further, the venture capitalists will fund the required startups. In return, VCs would get equity stakes.
Venture capitalists do not invest in startups of early stages. If you are new to the game of investing, you might not want to invest in Venture Capitalists. But if you are rolling the ball for a long time, you know venture capitalists give an impressive ROI better than Angel investing.
But being said that, let me inform you that VC faces a very high risk. If you are planning to invest in VC, researching about the start-up is a must-step to follow. Remember, the startup should NOT be in the early or seed stages.
Venture capitalists can expect a return of 25-35% of equity. Huge? Isn’t it? Yes, it is. The more risks you take, the more rewards you get.
There are many VC firms of India such as:
Check out their sites.
3. Crowdfunding
If you want to invest a very small amount in startups, then there is nothing better than crowdfunding. You can invest as little as $10 (approx INR 755) in startups. There are various crowdfunding sites available. You can invest in any crowdfunding site and the site will eventually invest in startups with a pool of investors.
In crowdfunding, you can get returns as equity, or as interest, or you may get other benefits. The ROI will be lesser as compared to angel investing, or venture capitalists.
Warning- Crowdfunding can lead to vulnerable failures, frauds, loss of money. So before trusting any site, do your thorough research to get to a conclusion.
Concluding How To Invest In Startups India
Indian investments are skyrocketing day by day. If you are an investor, you should know how to invest in startups India before actually investing.
Firstly, selecting a startup is a daunting task. You need to look at these factors before selecting a startup.
- The commitment of the founder
- Business plan
- Market opportunities
- Relevance of the startup niche
- The commitment of the entire team
- Timeframe for profit
Once decided, you have three options for investing in any startup in India.
- Angel investing: investing small amounts for long periods.
- Venture Capitalists: investing large amounts for small periods.
- Crowdfunding: investing very little amounts to startups.
Thank you for reading. Visit readosapien for more such content. With this, we conclude the topic How To Invest In Startups India 2021-2022. Happy Investing!