July 2019

STARTUPS AS AN INVESTMENT ASSET CLASS

Sanjay Mehta
Startup Investor

Funding startups is glamorous, but the big question is how much returns can they generate as an investment asset class?

 

Start-ups are young, emerging companies working on breakthrough innovations that would fill the need gap or eradicate existing complexities in the ecosystem. These companies are in a constant endeavour for new development and researching new markets. They have agility embedded in their inventive thinking. Angel investors fund a startup for several reasons but the first and foremost reason is that they believe in that idea, project or passion. They want to make the entrepreneur startup successful with the help of the disposable capital available at their end.

 

Investing in startups is more an art and less of a science Ė it isnít meant for everyone; it is subjective. There is no method to this madness, nor a defined college degree to help you learn venture investing. Every deal, experience and strategy shared in the public domain is anecdotal. Angel investors provide capital for small entrepreneurs but are not in the money-lending or financing business. The finance they provide is for that first round of seed capital to make the idea / vision into a reality. Entrepreneurs can also find angel investors in their family and / or friends who will support them with capital on terms favouring them. Angels risk their money in people, teams and ideas which are fragile in nature. Hence this is termed risk capital investment.

 

Angels are individuals who have a good, successful background; their names evoke trust in the minds of customers or future investors. They back the startup by associating their name with it, which provides the entrepreneurs the required creditworthiness in the market.

 

Why I love startups as an asset class for investment is because I can offer my time besides my capital. In other investments like public equities or real estate I canít influence an outcome. Venture investing is a people business, so if you like meeting, working and helping people, then your chances of success are very high. With early stage startups as their lead investor, I work closely with the founders to create a positive outcome. Before beginning a discourse on the merits and demerits of investing in startups, letís first understand investing in startups from the bottom up.

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