A startup business is a company or organization that is in its early stages of operation, typically focused on developing and marketing a unique product, service or technology. Unlike established businesses, startups are often characterized by their high-risk nature and limited resources, as well as their ability to rapidly innovate and pivot in response to changing market conditions.
Startups are typically founded by entrepreneurs who identify a market opportunity or need, and then develop a solution to address it. This may involve creating a new product or service, or applying innovative technologies or business models to existing industries.
In order to launch and grow their businesses, startups often require significant funding and support from investors, accelerators, and other stakeholders. Many startups also participate in incubators and accelerators, which provide mentorship, networking opportunities, and other resources to help entrepreneurs develop their ideas and bring them to market.
Despite the high risk involved in launching and scaling a startup business, many entrepreneurs are drawn to the potential rewards, including financial success, personal fulfilment, and the ability to make a positive impact on society. In recent years, startups have also played an increasingly important role in driving innovation and economic growth, particularly in emerging industries such as fintech, healthtech, and edtech.
Investing in startups in India has become a popular trend in recent years. With the Indian government's push towards entrepreneurship and the growing startup ecosystem, many investors see India as a lucrative market to invest in. In this blog, we will discuss the benefits of investing in startups in India, the challenges that investors face, and some tips to help investors make informed decisions.
Ways to Raise Fund for Startups in India:
Raising funds is a crucial step for any startup, as it provides the necessary capital to develop and grow the business. However, it can also be a challenging and time-consuming process.
For Angel & very Early stage: For Raising fund by Angel & very Early stage startups, there are multiple platform like Tyke where investor can invest with only ₹5000 only & can get Equity of that company for a better growth.
SeedInvest is an equity crowdfunding platform that connects startups and small businesses with investors. It allows early-stage companies to raise capital from a large pool of accredited investors, which can help them fund their growth and development. SeedInvest offers a variety of investment opportunities, including equity, debt, and convertible notes. The platform provides a rigorous vetting process for companies to ensure they meet specific standards and regulations.
Republic.Co Republic.co is a crowdfunding platform that enables startups and small businesses to raise capital from a wide range of investors. Founded in 2016, Republic.co has quickly established itself as a leading platform for equity crowdfunding, enabling entrepreneurs to raise funds from both accredited and non-accredited investors.
Republic.co operates under the Title III regulation of the JOBS Act, which allows startups to raise up to $5 million per year through equity crowdfunding. The platform also operates under Title IV, which allows startups to raise up to $50 million through Regulation A+ crowdfunding.
In addition to providing a platform for crowdfunding campaigns, Republic.co also offers a suite of services to help startups succeed. These services include marketing and promotional support, legal and regulatory assistance, and access to a network of experienced mentors and advisors.
Seed & Pre VC-Stage:
Seed and pre-VC (Venture Capital) stages are critical points in the lifecycle of a startup. At the seed stage, a startup is typically in the earliest stages of development, and may only have a rough idea of its product or service. Seed funding is often provided by angel investors, friends and family, or crowdfunding platforms. This stage is focused on proving the viability of the business model and validating the product-market fit.
Once a startup has proven its concept and gained some traction, it may move on to the pre-VC stage. This stage is typically characterized by early revenue generation, a growing user base, and a clear path to market. At this stage, startups may seek investment from early-stage venture capital firms or strategic investors who can provide additional funding and expertise to help the company scale.
For investors, seed and pre-VC stages can offer an opportunity to get in on the ground floor of a potentially high-growth startup. However, investing in early-stage startups carries significant risk, and investors must be prepared to accept the possibility of losing their investment.
For such stage there are multiple platform
Let's Venture is a leading Indian online platform for startups and early-stage companies to raise funds from investors. Founded in 2013, Let's Venture aims to simplify the fundraising process for startups and provide them with access to a wide range of investors.
The platform operates on a membership model, with startups required to apply for membership and meet certain criteria to be listed. Once listed, startups can create a profile and pitch their ideas to a network of angel investors, family offices, and venture capital firms.
Let's Venture provides a range of services to help startups raise funds, including legal and compliance support, financial modelling, and deal structuring. The platform also offers tools for due diligence, investor management, and portfolio management, making it a comprehensive solution for startups looking to raise funds.
Let's Venture has been instrumental in facilitating fundraising for several successful Indian startups, including OYO Rooms, ZipGo, and Razorpay. The platform has also been recognized for its impact on the Indian startup ecosystem, receiving the award for 'Best Alternative Investment Platform' at the 2019 Entrepreneur India Awards.
It is Founded in 2018, Inflection Point Ventures (IPV) is a 7000+ strong members angel investing firm which supports new-age entrepreneurs, providing them monetary & experiential capital by connecting them with a diverse group of investors. A new investor can start with a small investment and still make a meaningful value proposition for the startup with combined funding from various members. This facilitates Start-ups to gain funding along with access to network, guidance and mentorship.
Maturity Stage Funding
The maturity stage is an important milestone for startups, as it marks a period of stable growth and increased profitability. At this stage, startups have typically established a solid market position, built a loyal customer base, and had a proven track record of success. Maturity stage funding refers to the financing that a startup requires to sustain and grow its business during this stage.
For Maturity Stage, An Unlisted Startup Company can go for Initial Public Offering (IPO).
An IPO (Initial Public Offering) is the process of a privately held company offering shares of its stock to the public for the first time. Through an IPO, a company can raise significant capital from a wide range of investors, including institutional investors, retail investors, and individual traders.
In Recent years, there are many startup that went for IPO for raising fund. Some Notable example are:
1. Zomato: In July 2021, the food delivery and restaurant aggregator company went public with a valuation of around $12 billion.
2. Paytm:: The digital payments and financial services company went public in November 2021 with a valuation of around $23 billion.
3. Policybazaar - The online insurance aggregator company went public in September 2021 with a valuation of around $4.4 billion.
4.Nykaa - The online beauty and cosmetics retailer went public in November 2021 with a valuation of around $7.2 billion.
5. CarTrade - The online platform for buying and selling used cars went public in August 2021 with a valuation of around $1.9 billion.
Synopsis of Startups IPO’s
From the above synopsis we can understand Majority of the IPO is trading less than its Listing Price today. (Please note: In case of Nyka the share is trading now at 124 as as NYKA- FSN E Commerce Ventures issued Bonus Shares at 1:5 Ratio & after listing of bonus share, the stock price slipped by 9%)
Majority of the Startups company has failed to provide good return to Shareholders investing in IPO except Nyka which has given a listing Gain of ₹893. The major reason of these failures are over estimation of market size & Over valuation of the company which makes the investor to exit as soon as possible since these companies are not fundamentally strong.
Nowadays, Retail Investor usually don’t find that much confidence to invest in these startups IPO due to past bad experience in their investment.
Let’s see the benefits & challenges in Investing in startups
Benefits of Investing in Startups in India:
High growth potential: Startups in India have the potential to grow rapidly due to the country's large population and increasing disposable income. The startup ecosystem is still at a nascent stage in India, and there are many untapped markets and opportunities waiting to be explored.
Low investment costs: Investing in startups in India is relatively cheaper than investing in startups in the US or Europe. This is because the cost of living in India is lower, and startups have access to cheaper resources such as talent, office space, and technology.
Government support: The Indian government has launched various initiatives to support startups in the country, such as Startup India and Atmanirbhar Bharat. These initiatives provide startups with funding, mentorship, and other resources to help them grow.
Diversification: Investing in startups in India can be a great way to diversify your investment portfolio. By investing in startups in different sectors, you can reduce the risk of losing money.
Startup businesses in India are facing a variety of challenges that are hindering their growth and success. These challenges include:
Lack of funding: While India has seen a surge in startup activity in recent years, there is still a significant gap in funding for early-stage startups. Many investors are risk-averse and prefer to invest in more established companies, which can make it difficult for startups to secure the capital they need to launch and scale their businesses.
Complex regulations: India has a complex regulatory environment, with multiple levels of government and a range of bureaucratic hurdles that can make it difficult for startups to navigate. This can include challenges related to registering a business, obtaining licenses and permits, and complying with various laws and regulations.
Limited access to talent: While India has a large pool of talent, startups often struggle to attract and retain the best and brightest due to competition from established companies and limited resources for recruitment and retention.
Infrastructure challenges: India's infrastructure can be a significant hurdle for startups, particularly those in remote or underdeveloped regions. Poor transportation networks, limited access to high-speed internet and other technologies, and unreliable power supply can all impede startups' ability to operate effectively.
Limited market access: Despite the size and diversity of India's population, many startups struggle to reach a large and diverse customer base due to limited market access and low consumer spending power.
Cultural and social barriers: India has a complex cultural and social landscape that can present challenges for startups. These may include issues related to language barriers, gender inequality, and cultural norms around entrepreneurship.
Corporate Governance: Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. It encompasses the relationships among a company's management, its board of directors, its shareholders, and other stakeholders, and defines the procedures for making decisions on corporate affairs.
However there many startups which got carried away in this Valuation Race & they forget to maintain the Corporate Governance & gets involved in false reporting.
Go Mechanic- A First Mover Startup in Automotive & Mechanic Industry had reported over inflated numbers & fictitious Garages. Some of its favoured partner garages were found to be making disproportionately more money during due diligence. Later Go Mechanic was acquired by Lifelong Group led consortium in slump sale.
This transaction will assist in preserving the ecosystem at large and also enable in providing continued livelihood to the employees at Go Mechanic.
Zilingo, a Singapore-based B2B fashion tech startup, valued at $1 billion in 2019, is set for liquidation after a prolonged crisis.
The countdown to the company’s demise started during an AGM held on 10 February 2023, when the decision to initiate the dissolution process was made.
In 2022, Zilingo’s board suspended Ankiti Bose on accusations of financial irregularities. Ankiti denied the accusation entirely and accused the company of sexual harassment.
With the CEO gone, more important people started jumping ship. The investors were obviously salivating for an exit, so they pushed to liquidate all of Zilingo’s assets.
Despite these challenges, many startups in India are finding innovative ways to overcome these hurdles and succeed. By leveraging technology, collaborating with other startups and stakeholders, and building a strong team and culture, startups can create successful businesses that make a positive impact on society and the economy. Additionally, the Indian government has launched various initiatives to support startups in the country, such as Startup India and Atmanirbhar Bharat, which provide startups with funding, mentorship, and other resources to help them grow.
To be successful in investing in startups in India, it is important to conduct thorough due diligence, evaluate the startup's team, business model, and market potential, and have a clear understanding of the risks and potential rewards of the investment. By partnering with the right startups, investors can not only achieve significant financial returns but also contribute to the growth and development of India's startup ecosystem.