India has become the 3rd largest startup ecosystem after the US and China. This is an opportune moment to invest in startups as the inflow of wealth will be faster in this sector than in any other investment platform. Angel investors, micro-VC funds, syndicates and angel networks are playing a prominent role in attracting investment in the early stages. Before investing what should you know?
Let us understand what angel investors and capital fund investors are. Companies that promise start-up funds in exchange for a chunk of the business are termed investors. These investments are in the form of equities or royalties and include small investors making investments in exchange for small shares of the eventual profit when the company succeeds.
There is a significant difference between angel investors and venture capitalists (VC). While both invest in start-ups, they get involved with investments at different stages. The angel investor is an early-stage investor. VCs are investors like banks or other financial institutes who allocate funds to companies with exceptional potential to grow.
What is generally considered the reason for success behind a start-up? Start-ups that work on problems and find disruptive solutions to make life easier have probabilities of a breakthrough. The closer they are to relevant solutions the better their chances of success and securing investment. However, as an investor, it may not be possible to recognize the potential growth of the company.
Is the startup VC backed? How are the funds being used? Get an in-depth understanding of the business model. What is the target market, is the product or service in demand, or does it have the potential to create demand? How transparent is the team with its credentials and experience in handling the solution? Has the team achieved anything significant that makes the investor hopeful? Does the internet have anything significant on the founders or the business model of the startups? These are difficult questions that may not have complete answers, so search for a VC-backed startup.
The next important concern that drives investment is scalability. Your concern is a strong return on investment. Even if you are an experienced or a first-time investor in a startup, carefully study the business model to forecast potential scalability. Will real customers in great numbers pay a price for the product or service? Business plans that make their assessments based on speculations may turn out unreliable.
Do not go by the numbers that founders showcase, if you are entering a start-up investment platform, look for evidence-based data that is realistic and tested. If the product has already shown signs of success in its target market that should boost the investor's confidence. Study their sales and try checking the reviews from merchandise websites or online forums.
If you are an investor with a healthy risk-taking appetite and invest in shares and mutual funds, try investing in the moderately risky startup equity. Your chances of losing funds are much lesser here. It may be a bit difficult to find a reliable startup independently, but you can do so through an investment platform hosting startups with growth potential. Grip offers interesting alternative investment options like startup equity allowing the ease of crowdfunding. Be a small investor and grow with a rising startup.