becoming unicorns or even decacorns, entrepreneurs becoming national idols,
co-working spaces sprouting up around the country, and a slew of other good
developments in the entrepreneurial ecosystem have all occurred recently.
you ever pondered who is fueling this growth or who is giving 'wings' to
game-changing ideas and trailblazing entrepreneurs?
in startups, often known as angel investing, is a growing possibility for
retail investors who want to support and be a part of a startup's growth
the nature of startups as an asset class,
I strongly advise early investors to take a portfolio strategy to investing.
Instead of making one or two large investments, invest in 10-15 companies to
hedge your best bets.
What is an Asset Class?
An asset class is a collection of investments with
comparable characteristics and that are governed by the same rules and
regulations. As a result, asset classes are formed up of instruments that
typically act similarly in the marketplace.
classes include equities (e.g., stocks), fixed income (e.g., bonds), cash and
cash equivalents, real estate, commodities, and currencies.
diverse asset classes, there is frequently relatively little connection, and in
some circumstances a negative correlation. You can say Asset class is a tool
for financial advisers to assist investors diversify their investments.
What are the Different Types of Assets?
provides returns commiserate with the risk taken. Old options are Gold,
Bullion, Stocks, Real Estate. New one is investing in Startups
“What’s the use
of savings? It hardly provides enough returns.”
If someone ask,
why is interest rate reducing, the answer is all developed and high growth
economies tend to be business friendly. In that process, cost of money i.e.
interest rate at which individuals or corporates get the funds from banks,
reduces to make putting business venture attractive.
If lending to
businesses are low, interest on deposits are lower too. Developed countries
like USA has interest rate of 1.25% on savings, UK has 0.5% and so are with the
other developed nations.
avenues of investment in Gold / Silver, Forex, Real Estate, Equity, Mutual
Fund, Fixed Deposit among others have diminishing ROI over the last 5 years.
Here are some statistical facts
- Silver and Gold
have slipped from $32 to $17 & from $1608/oz to $1270/oz respectively, over
the last 5 year
- USD, EUR &
GBP [against Rupees] have moved from 55, 70, 87 to 65, 72, 83, giving returns
of 2.7%, 0.5%, -0.8% respectively over the last 5 years
- Sensex moved from
19427 to 31109 and Nifty from 5905 to 9605, giving returns of 10% and 10.4% of
an investment on index based funds, over the past 5 years
- FD returns have
changed from 8% to 6.25% and trend is reduction in interest rates further
- CAGR returns on Real Estate investments
have been roughly about 8% (over last 5 years), 13.4% (over last 10 years),
10.8% (over last 15 years) and 6.2% (over last 20 years) [Source: Morgan
Source- by Etienne | Medium
Indian prices are directly proportional to prices quoted above in
dollars. All the above returns are pre-taxed. Trend is not only relevant
between the end node points of these last 5 years but also applicable equally
during these last five years.
Real-Estate and Gold were giving positive and healthy returns when substantial
investment was being funneled through black money. It is still possible but it
is becoming difficult basis various government initiatives. It may not be worth such a risk.
If better returns
are to come from business, why not invest in the business itself. If you
believe start-ups have a promise in the near future, not only to solve problems
in our society but also for financial returns, please read further on.
Investing in the startups as angel investor, to start with, is new asset class.
India has caught
on start-up culture after USA (Silicon Valley), UK, China and Israel.
Investment in start-ups is being done by family and friends at ideation stage,
by angel investors at seed stage and by venture capitalists at growth stages.
availability of quality founders, bright mind and unmatched passion, many
startup founders are succeeding and generating returns of unparalleled
magnitude to their investors.
With so many
startups failing, is investment in startup not risky? Yes and No. Like any
investment – be it equity – primary or secondary, silver, gold, real estate,
etc. you are not sure any longer of positive returns. I will be surprised to
see a portfolio manager committing any returns at all, if not investing in gold
bonds. In that sense, Startups too are risky.
risk can be reduced, just like knowledgeable people who manage your money in
other asset class, The Startup Board and others, who understand due diligence
process, reduce the risk, by considering level of risk consciously. It is just
like in a business.
benefits to individual angel investors –
- high possible
returns from this new asset class,
- opportunity to mentor the invested founders
and keep a watch on the risk,
- spreading your
risk profile into new asset class, balancing the portfolio
- enhancing tax
incentives for your portfolio,
- possible position on the board of
possible next wave technology startup, to help solve problems in the society
(also making money).
corporate, instead of setting up new R&D or investment into product
development, let it be left to a startup, who can turn-around the idea into
execution much quickly and inexpensively.
companies, who know little on product development and management, can better
partner and take the offering to market together, to their customer or startup
selling it to others, thereby getting better traction with low operating
expenses. A hands away approach immune the corporate brand, in case product
does not succeed.
and startup can avail tax incentives that exists. It also rejigs the innovation
landscape of the organization, from an external catalyst doing innovative
thinking, product development, roll-out, all of which organizations take longer
in refreshing themselves. Startup company, with such close watch, may be good
inorganic investment opportunity too for the corporate.
How to invest
If you have sensed
benefits already, there are multiple ways to go on to identify the startup and
invest. You can do it yourself, take help from those working in the eco-system
and know startups and market trends better, or approach through chamber of
needed to look in the startups (in that order) are:
- value system of the founders
educational and experiential background
- potential of
the sector in which venture is operating in
- business model
of the startup and
- scalability of the business, model or sector.
Once these basic
things are in place, it is all business acumen of the investor or advisor.