Startup Equity

Understanding the risks and rewards of startup equity investing

The risks and rewards of startup equity investing

If you have been investing in volatile equity investments like stocks and mutual funds or low-risk investments like fixed deposits, you can expand your investment portfolio with alternative investments. Alternative investments are the go-to options for smart investors. It is where even traditionally high-ticket-size investment options like startup equity are made accessible. 

As Prime Minister Modi reiterated “Startups are going to be the backbone of new India.” In addition, startups are the real muscle behind economic growth and employment generation. So why not explore the benefits of investing in startups? 

Now, let us evaluate how investing in startups can offer investors an exciting risk-reward proposition.

A government press release published on 22 July 2022, reveals that Indian start-ups expanded to a massive 72,993 by 30th June 2022 from 471 in 2016. India has 103 unicorns valued at over $1 billion as on 20 September 2022. 

Startups have created unique services and built businesses that were completely never heard of even a decade ago. 

By curating investment opportunities that allow regular investors to participate in VC-backed early-stage, disruptive startups, Grip has simplified startup equity investing for everyone. The due diligence and assessment process put Grip in a position to spot asset-rich, high-return companies for investors, making startup investing easier than ever before. 

Why Is This The Right Time To Invest in Startups?

Investing in startups now can be termed a wise investment. With the economic slowdown and turbulent market performance, investments in startups can reap potentially lucrative returns over the long term. 

The Potential Of The Rupee 

Even though the Rupee has declined, the British Pound, Euro, and Japanese Yen have suffered greater depreciation against the US Dollar than the INR. Thus, the INR has created a higher potential for future upside. So, Indian startups dealing with global currency can gain increased returns.

Investors Gain Better Returns

Private equity can add investment value with improved tools and experienced investment partners like GripInvest. Their platform enables investors to start investing in startup equity as little as Rs 2 lakhs with the potential of earning 20% on exit. All said and done, not all startups succeed and investors can feel apprehensive about investing in startups.

Benefits Of Investing In Startups 

So, let us offer an overview of investing in startups as an alternative investment. How suitable are they for your portfolio diversification? And, why should you start considering being a part of the startup ecosystem? 

Generating Substantial Returns

Large companies display a diminishing tendency towards risk-taking. While managing huge funds, it gets difficult to deploy those funds, resulting in conservative investment. Start-ups on the other hand, work with smaller funds, shared investments and take decisions to outperform themselves. Though the larger sums lie with big companies, start-ups have the potential to raise disruptive returns. 

Thus, by investing in multiple start-ups instead of over-focusing on one start-up, making profits from mixed asset classes. An early investment can bring rewarding returns that surpass many other conventional low-risk or high-risk investments available in the market.

Investors Build A Strong Network 

The benefits of investing in startups include a strong platform to build a wide network with other investors, founders, and stakeholders. Your investment opportunities gather a prismatic spread during the stages of networking.

Ownership Without Hard Work

You can experience the joy of owning a business without having to run one. All the hiccups and worries that come together with a business venture belong to the founders and co-founders. All you need to do is to add your funds to startup equity and watch closely the company’s performance. As long as you invest in a startup that grows, you stand a chance to have a huge upside.

Contribute To A Larger Cause

Start-ups come up with ideas that solve problems and make life better for people. When you decide to invest in a startup, you get to do your bit to benefit the world. If the startup succeeds, not only do you gain financially but you allow a whole ecosystem to benefit from the business.

Risks Involved In Startup Equity Investing

Startup investment has a fair share of risk. Hence, taking an informed decision will give you an idea about the bigger challenges. So, before you embark on an investment, weigh the potential risks and just don't look at alluring returns.

Poor Management Can Cause Failure

Startups are a product of hard work and planning. To save the investor from plunging into a stage of bankruptcy, it is important to develop a blueprint that includes pre-investment and post-investment plans. 

Your team should have people who can modify and implement the plan in the first 3-6-months. Your success can be evaluated by the take-off performance in the first year. We advise companies to focus on digital data feeds offering foresight on organic growth while maintaining healthy margins. 

Investor Knowledge Is Crucial

When participating in any investment independently, investors must upgrade their knowledge with reliable information to reap the benefits of investing in a startup and save themselves from being cheated. A lot of money is involved that naturally attracts fraudulent activities. 

Investors must perform background checks on founders of startups, deeply study their plans before investing in their startups, and keep a close watch on their progress with special attention to any form of discrepancy as a sign to withdraw investments at any given point. 

Failure To Launch 

Not all start-ups are successful, and some fizzle out within five years due to various reasons. Startups must ensure that they follow a Product-market fit (PMF) concept addressing the pain point of the customer. 

The other area where they fail is not being able to read a better product from their competitors. Startups taping new technologies sometimes fail with limited knowledge and poor execution and are not able to leverage the business to its full potential.

The Investment Lockup Period Is Unspecified

Unlike other traditional investments where you are given an assured tenure of maturity, investment in startups crops liquidity issues. If you are looking for ready returns, then investing in startups is not for you. No one can predict the time for a startup to dawn. Until it starts realising profits, your investment is stuck for a long time. You get money only at the exit.

So How Can You Avoid These Risks And Safely Invest In Start-Ups?  

Startups pose a high-risk, high-reward equation making them a phenomenal equity investing opportunity. To mitigate risks and earn lucrative returns we have the perfect solution for both small and large investors. How does Grip Invest work?  

  • Due Diligence: Grip team does the due diligence to include only those start-ups that meet our standards. Investors subscribe to a sharing economy platform connecting retail investors with startups through curated deals. Investors also get a detailed profile of the startup company, its performance, and highlights of its key investments. 
  • Curated Deals: Individual investors can access curated deals and invest with strategic investors' venture capital funds in potentially promising startups. The faith shown by big and reputed investors in these start-ups gives confidence to the individual investor to put money in these potentially high-yielding investments.
  • Small Ticket Size: Investors with capital funds of a minimum of Rs 2 Lakhs can be part of the startup funding ecosystem through lease investment. We create a Limited Liability Partnership from the contributions of the retail investors making them partners. Hence, Grip opens the door for common people to invest in something only the rich could afford and get benefitted.
  • No Stress Funding: This form of crowdfunding also benefits startups. Convincing VCs to invest in startups at their early stage is an uphill task that defeats many in boot camps. Lease funding mode for promising startups provides capital that helps them not just to sustain but grow into successful ventures.
  • Co-sharing Assets: Curated startups keep a security deposit as collateral with us. Investors start investing in startups, and with funds, they get ownership of the assets of the start-up, as per their investment.
  • Healthy Return: Investments are taxed at the LLP level. So even if the IRR is reduced to half, your returns are 11% IRR, which is better than many other investment options. You can further invest in another startup on the platform for 24 to 36 months.
  • Security Pay-off: If by any chance the company fails to return the investors their money, we use the 10% security and pay off investors.
  • Agile Risk Management: We monitor each start-up’s progress and guide them from falling into such situations. However, if things are unavoidable with permission from the founders, we reassign the assets to other leasing partners. 
  • Our Profile: At this point, we have an investment community of more than 2.5 lakh investors. It enables investments up to Rs 364 crores, with zero defaults, investors can start with a minimum of INR 15,000 investment on other products.  

How Are We Reducing Ticket Sizes On Startup Equity Financing?

We are creating opportunities for fixed-income investors at reduced ticket sizes. These investments are not market-linked high and are less volatile than assets like mutual funds and cryptocurrencies. 

Our high-yield fixed-income investment brings a whole new investing experience for low minimum ticket size investors. 

Takeaway

Startup investing is not for everyone. You need an expert like Grip to help curate and find the right options for you. To help reduce the ticket size, and to help handle all the paperwork and legalities. It is a great option for those looking for - long-term wealth. Patient investors, with ample investing experience, will find this option exciting and lucrative. 

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Grip Invest
Grip Invest
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December 22, 2022
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