October 31, 2020

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Investment for startups in India-Everything you need to know!!

An investment of $ 14.5b was raised by the tech startups in India in 2019. Qatar Investment Authority did 150 million dollars investment in the fastest growing startup BYJU’S. Flipkart invested 66 Million dollars to expand PhonePe. Ratan Tata invested in Ola Electric.

Investing in a startup is instrumental in creating, nurturing and developing an asset that when placed under the right conditions can generate surplus cash for providing not just a good standard of living but also funding other investments.

Samsung invested $8.5 mn

in 4 Indian Startups

CarDekho Raised $100 mn Investment Q4 2018.

This concept is not uncommon especially for nations that have an entrepreneurial history such as the United States and now India is also running along.

Who are the investors?

Now the question here is who are the investors? An investor can be defined as a person who allocates capital with an expectation that he or she will receive a financial return in the future. There are several types of investment. They include equity, real estate, debt, securities, currency, commodity and many more.

Type of investors

The beginning of the entrepreneur and investor relationship is marked by letting the investors work with your business. You can receive investment for startups in India but they expect their money to increase as soon as possible.  There are mainly five types of investors. They are as follows.

  • Banks

Banks are the best organizations for business loans. Loan seekers are required to give proof of their revenue stream for getting loan approval.

  • Angel investors

Individuals with an earned income exceeding $200,000 are the Angel investors. They are really helpful for entrepreneurs who have the possibility to grow.

  • Peer to peer lenders

They are the group or individuals who offer funding to small business entrepreneurs. For working with them businesses must collaborate with companies specializing in peer to peer lending.

  • Venture capitalist

Venture Capitalist is the capital investors who invest their money in startups which show the huge potential of growth, but of course in an exchange equity stake.

The most beneficial investment for your startup will through the Venture Capitalists, or so to speak “The Angel Investors”. But the trend is now shifting towards a more prolific term called the “Corporate Venture Capitalists” or CVCs.

  • Personal investors

Many business owners depend on friends, family or close acquaintances for their investment into the company, especially during the amateur stage. However, a legal limitation prevails in this case.  

Role of investors

A good investor is more than just the allocator of the financial assets for keeping your small business well funded. Thus, selecting the right investor is important, only then a business can blend its financial capital with its human capital. In exchange for providing capital most of the investors take a percentage of ownership of your company.

Angel investors want more than 20 to 25 percent return on their investment for startups in India or they ask for equity in your startup. Since the money is not a loan they may not get back the money they are investing thus they will be with you until and unless you sell the business.

How to find the right investor for startup?

You might feel tempted to take the first business investment offer you receive, but don’t jump into an immediate conclusion. Know that you need to work with this person as long as your business is working. Thus, before you jump always make sure that the investor you are opting for is well experienced in the industry you are in and he or she is efficient enough to get involved with the company at certain stages.

Best ways of finding an Investor for startups in India:-

1. Reach out your Family and Friends:

If you are going to start a small business, your family and friends are great options for capital. Before searching outside you should discuss your business plan and maybe they can be ready for a loan or they can be an investor in your business. Make sure to complete all legal formalities to save the relationship with them.

2. Apply for Government Loan scheme:

The government has launched some new business loan schemes. You can get a loan from the government whether you belong to the rural or urban area. Here are some government loan scheme which you can take advantage of:-

  • MSME Business Loans – MSME(Micro, Small & Medium Enterprises) provide loan offers to startup and small businesses. MSME loans are first announced in September 2018 by the Indian Government and RBI for business enterprises. It only takes 59 minutes to notify you that your loan approved or not while it takes 10 to 12 days to provide your loan amount if your loan got approved. Loan and interest rate depends on your credit score and business category.

3. Find Angel investors:

Angel investors usually invest in private equity or second-round funding to grow a small business that needs money to expand. You can find angel investors online or in your local area.

4. Use Professional Social media platforms Networks :

Find out the social media influencers in your industry. Check if they are investors too! connect with them and make a good impression of your startup.

How does Corporate investment benefits startups in India?

A lot of times corporate firms choose to become a parent company of a startup. If the technology that your startup is working on has a lot of potential, then the corporate firms would even assist you with their resources to help you grow.

There have been multiple striking investments and successful startups in the country that have made their mark and made it big owing to VC interventions or with the help of Corporate firms.

But there is a very good reason as to why they invest in potential startup firms in India. The theory has been conclusively supported by an assistant finance professor at Yale School of Management, Connecticut. He states the fact that companies invest in startup firms to curb the disadvantages that they themselves face during the course of their business aspect.

Startup Companies- Who made it Big !!

There are so many notable examples from renowned companies that have invested a lot in startups. Some of these famous startups and corporate firms with investment amounts are listed out below.

Investment for startups in india
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When Samsung turned out as an Investor for startups in India

There have been concrete reports about Samsung investing in four potential startup firms.

  • A system application company called OSLabs.
  • A speech technology-based startup called Gnani.ai.
  • Solutions provider for Internet of Things called Silvan Innovation Labs.
  • An unnamed computer vision-based startup company.

Samsung has put in a total of $8.5 million across all of these startups which explains the impact and confirms the reasoning behind the investment procedure. Whenever there is an inception of a technology that is fresh and out of the box, everyone loves to get their hands on it. If corporate firms fail to capitalize on this, then that would be a mistake and something that they would regret for some time.

There have been many examples when big firms have fallen prey to technological disruptions that they were unable to handle. This led to the companies falling into bankruptcy, and the startup firms emerged high because they were at the right place at the right time. One of the examples is Nokia, who failed to tap into the limitless potential of Android and continued using Symbian. Eventually, the Company had to shut down for some time until they finally accepted the Android OS.

Conclusion

Startups bring in a fresh breath of air in this conventional world. They act as disruptors in the market and work with the trends that are currently in existence.

Corporate firms will face multiple advantages if they are doing this investment for startups in India. The key advantage that they would get would be that they can expand their horizons a lot more than they used to before. They can diversify their business aspects, update their portfolio and be a part of the revolution that drives the digital.

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