Why Homegrown Startups are a Better Investment Bet?
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Over the last decade or so, India’s startup ecosystem has gone through a tectonic shift, albeit revolutionary in nature. Ease of funding, documentation, and local demand has inspired a lot of entrepreneurs to try out their ideas on the ground. The result is for us to see. The number of unicorn startups in the country is in double digits. These startups have also become the lighthouse for others.
The availability of the right startup ecosystem has encouraged major venture capitalists and angel investor to be bullish on India’s startup story. The proof point is that in the quarter ending March 2019, Indian startups recorded total funding of US$3.42 billion, about 39 per cent more than the same quarter last year. However, at the same time, the investors have gone cautious in their selection process and look for highly promising startups. The key is to look for the right lens to select the right startup. One such lens could be the origin of the country. Here is why homegrown startups could provide much more value as compared to those venturing into new and completely unknown territory:
Industry Understanding: homegrown startups have the best understanding of local scenarios and business problems. They can deep dive and find some unmatched consumer insights. For example, the challenge of not being able to find a reliable local car mechanic on demand is something that a European company may not have known. Therefore, an Indian startup with this business model has a better chance to succeed.
Consumer Connect: India is a diverse land, with language, consumer habits, expectations, and social scenario changing every few kilometres. A homegrown business has a better chance to know all these variations and customize its offerings, consumer connect, and value-added services. It can also deal with any crisis arising out of negative consumer feedback, policy changes, or any business eventualities.
Affinity with Founders: Background and track record of founders plays an important role for investors to make their decisions. With local founders, the trust level is usually high, as endorsement may come from a peer, friend, or even from the academic institution where they studied. Such endorsements help in breaking the ice between the founder and investors and take their partnership a long way. It also adds a sense of responsibility to the founders to prove their metal. Think of a foreign founder who misses on his promise and wraps his business in India. The damage to his market reputation will be much less than that of a homegrown founder. Therefore, a homegrown founder is expected to put everything in line when his reputation is at stake.
Talent Pool: There is no debate about India being the land of opportunities. It has a tremendous skill set with respect to every industry. The homegrown startups have the best opportunity to access this talent and invest in their growth. They can understand cultural nuisances and deal with them effectively. They can also develop a local team that partners the business, rather than just working as employees.
While there is no thumb rule to make an investment decision, selecting a homegrown startup could be a good starting point. It brings the sense of trust among investors and kick starts their relationship with the business on a high node. The communication between the investors and founders is also expected to draw more synergy and help the business in the longer run.