How to Invest in Startup?
Most of the professional have this question when it comes to invest in startup companies.
Thinking about investing in Indian startups in 2024 is a great idea! With more than 1,12,718 recognized startups all over the country, India is the third-largest startup market in the world. It’s not just about quantity; India also rocks in innovation, ranking second globally, especially in scientific stuff and good universities. They are solving problems across a variety of industries, including IT services, healthcare, education, agriculture, food & beverage, and more. Looking into 2024, India’s startup world is set for some exciting changes and opportunities. With lots of creative people, new tech trends, and a supportive environment, Indian startups are ready to grow big.
To help you get clarity on “how do I invest in a startup company”, here’s a list of ways to get into the growing startups investing world in 2024. We’ll explore practical ways to invest in Indian startups, covering different avenues and strategies.
How to Start Investing in Startups: 5 Experts Insights
1. Venture Capital Firms:
Venture capital firms remain a pillar in the startup investment landscape. For potential investors eyeing the startup landscape through venture capital, the numbers tell an intriguing story. In India, there are 1,660 Venture Capital Funds managing a combined portfolio of 15,900 companies, signaling a vast pool of opportunities. Good startup investment deals are more likely to reach suitable VC firms than any individual investors.
Investors should research and identify venture capital firms based on the general managers’ track record, theme of the fund, size of the fund and many other factors. Investing via VC funds is a very good bet to start investing in startups especially if your corpus to invest in this asset class is at least INR 1Cr and above. Even though you do not need to invest all that money in one-go, generally 2-3 years in trenches. VC funds would charge you yearly management fees (generally 2% of your corpus) and share in profit (generally 20%) at the time of exit.
2. Angel Investing:
Angel investing in India is experiencing a significant upswing, with projections indicating a robust 12% CAGR from 2022 to 2025. By 2025, the market is expected to reach $7 billion, up from $3.2 billion in 2022, as active angel investors double from 2,200 to over 4,500. High net worth individuals are increasingly recognizing angel investing as an attractive asset class.
Direct investment in startups can give you the biggest return compared to investing in VC firms, however the challenges of identifying good startups for investment, time it takes in due diligence, valuation negotiation, compliance checks etc can take enormous amounts of time if not managed by professionals. Ideally you can identify a few direct startup investments (in industry you understand well) each year. The idea is to build a portfolio of investments into startups in 2-3 years window of time.
3. Crowdfunding Platforms:
The landscape of crowdfunding platforms in India is poised for noteworthy growth, backed by compelling statistical data. crowdfunding platforms like kickstarter, Indiegogo may be a promising approach for investors who wish to diversify their portfolios and actively participate in the development of the Indian startup ecosystem. However you should check the ever changing compliance and regulatory framework for crowdfunding in India.
4. Secondary Market Transactions:
Navigating the maturing landscape of the Indian startup ecosystem involves exploring secondary market transactions as a viable investment avenue. In this phase, potential investors have the opportunity to purchase shares from existing investors or employees, providing a unique entry point into well-established startups. The intricacies of secondary market transactions necessitate collaboration with financial advisors and legal experts. This approach not only offers liquidity for existing stakeholders but also allows new investors to participate in the success story of proven startups. As the secondary market gains prominence, it becomes a strategic consideration for those looking to engage with established players in the Indian startup ecosystem.
5. Online Funding Platforms:
An emerging trend involves leveraging online startup investment platforms that connect private individual investors with startups actively seeking funding. Platforms such as IndiaBizForSale, BusinessEx, SMERGERS, and others serve as dynamic marketplaces where investors can explore a diverse range of investment opportunities. These platforms facilitate direct connections between investors and startups, streamlining the funding process. Investors can peruse detailed profiles of startups, understand their business models, and engage in discussions, making it a transparent and accessible way to discover and invest in promising ventures. The convenience of these online platforms broadens the scope for individual investors to actively participate in the startup ecosystem, aligning with their investment preferences and goals.
In 2024, Indian startups offer an exciting journey for investors. With a whopping 1,12,718 recognized startups, India is a global hotspot for innovation. It’s the perfect time to join India’s resilient and diverse startup scene, whether you’re an experienced entrepreneur or just starting out.
We wish you a happy investing journey!