“I made a really bad investment in a startup. How can I recover my losses?”

This was my response to the above question on Quora

The only way to make money as an investor in startups is to have a portfolio of investments. If you invest only in one and hope that it works out well, well, the chance are rather slim.

Startups by design are experiments … a set of assumptions that are being tested in the market by someone who has the conviction about a concept. Sometimes the experiment works, often it does not. But that is the only way new ventures get created… by testing many ideas.

So, if you want to make money by being an investor in startups, think of investing (or better co-investing with other angel investors) in 15–20 startups over a 3–4 year period. Some of the companies you invest in will shut down. Some will struggle to keep afloat, but will amble along. Some will become good businesses for the entrepreneur, but will not give any return (exit) to investors. Only a very few of these investments will give multi-bagger returns making up for the losses incurred in those who did not do well in the market.

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Does it matter who invests in the seed stage of a startup?

As with many aspects about business and entrepreneurship, there is no clear ‘yes’ or ‘no’ answer to this question.

It depends on a number of factors. Ideally at the seed stage entrepreneurs should seek investors who will help them in the formative stages of the venture. Individuals who can provide an experienced perspective, or who can provide an experienced opinion to help make choices, or who can make introductions to potential customers, etc. are ideal investors in a startup stage.

Continue reading “Does it matter who invests in the seed stage of a startup?”

Angel investors, VCs and other funding options for startups

While most entrepreneurs think of VC funding as the most obvious way of funding their startups, there are actually many different ways in which you can fund your startup.

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Getting Risk Capital I.E. Angel Investors Or Venture Capitalist – VCs

Angel investors or VCs are investors who give you capital in exchange of equity in the company.

Continue reading “Angel investors, VCs and other funding options for startups”

How angel investors can boost the start-up ecosystem in India

Senior professionals, moderately successful entrepreneurs as well as high net-worth individuals (HNIs) have been expressing an active interest in investing in start-ups. Individuals who are keen to explore start-ups as an asset class, however, have to recognise that investing in them is a high-risk, high-return game.

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They need to get comfortable with the fact that they could lose their entire capital in some of the companies they invest in, and that most of the start-ups they invest in may not succeed.

Anyone who has the ability to spare Rs 5 lakh or above a year — and not lose sleep over it — could look at co-investing in two-three start-ups a year, so that over a two-three-year period, they are able to build a good portfolio.

With a diversified portfolio, investing in start-ups can provide better risk-adjusted returns. Existing angel groups and investors typically invest in start-ups raising upwards of Rs 2-3 crore, as their members do not usually want to write smaller cheques.

Continue reading “How angel investors can boost the start-up ecosystem in India”

Starting your entrepreneurial journey – some food for thought

In my view, easier availability of early-stage capital than ever before, public celebration & adulation of entrepreneurial heroes, a well-deserved respect for entrepreneurism and also society’s willingness to accept failures in entrepreneurial ventures make it easier for younger people to consider entrepreneurship as a career.

I share below some observations that will hopefully provide some food for thought before you embark on your entrepreneurial journey.

A great idea of concept is not the same thing as a great business. Once you identify a concept that has a meaningful value proposition to your potential customers, you have to think of how you can build a strong, sustainable business around that concept. Think hard about concepts like revenue streams, business model, go-to-market strategy, resource requirements, etc. Continue reading “Starting your entrepreneurial journey – some food for thought”

India needs 10,000 more angel investors to build a thriving startup ecosystem

Only a very few aspiring entrepreneurs from among 1000s are able to convert their ideas into a business.  And one of the key reasons for this is the lack of access to capital that is required to start something new.

Out of 1000s of investment-worthy startups, less than 300 are able to get initial capital in India.

The present environment is very conducive for people to think of entrepreneurship as a career option. Entrepreneurship cells, incubation centres in colleges, boot-camps, hackathons, and other forums for entrepreneurship promotion, as well as a vibrant media for startups – all have inspired very few to become entrepreneurs.

Angel investor groups, accelerators, and incubators get over 5,000 applications every year. Nearly 10,000 startups send their profiles to media houses every year. While quite of few of these large numbers may not be serious contenders, there is a significant number of aspiring entrepreneurs with the competence, commitment and concepts that can become strong businesses. And quite a few of these can become profitable investments for angel investors.

Yet, only about 300 or so of these aspirants are able to get initial capital to get started. And mostly those, who require capital between Rs 2 to Rs 5 crore range. That’s the declared ‘sweet spot’ of most angel investor groups and VCs who participate in early-stage deals.

Why are there less than 300 early-stage investments in India?

VCs and Angel investor groups are unable to do smaller deals because their members do not want to write smaller cheques, and the efforts required to review, process and close a Rs 50 lakh deal is as much as it takes to close a Rs 5 crore deal. The largest angel investor network in the country does less than 20 transactions in a year.

The number of startups whose funding requirements are less Rs 50 lakh is significantly higher than the number of startups requiring Rs 2 to Rs 5 crore. In fact, many a businesses can get going with just Rs 25 lakh.

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Significantly, If we don’t find a way of funding 1000s of deserving entrepreneurs, we would end up frustrating that segment.

Continue reading “India needs 10,000 more angel investors to build a thriving startup ecosystem”

What are the differences between angel funding, venture funding and crowd funding? In what scenarios can they be exploited for maximum benefits?

(My response below, to the above question on Quora)

Different investors participate in different stages of a venture. Angel investors invest at the very early stages – when the founders only have an idea or when the idea is being or has been developed into a prototype. They provide enough capital for the idea to be tested and proven in the market, so that another set of investors can bring in more capital after the model is proven and when the venture needs more money to take the proven model to a wider base.

Continue reading “What are the differences between angel funding, venture funding and crowd funding? In what scenarios can they be exploited for maximum benefits?”