Forget Mutual Funds! Invest in start-ups to reap best gains

By Vikram Upadhyaya

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Investors, both in India and abroad, are now looking towards alternative assets in their portfolio, apart from the conventional real estate; or even mutual funds, stocks and bonds as a means to multiply their savings. But has it ever crossed your mind to invest in a start-up...? If not, you could be missing out on "something big'.

As a matter of fact, investing in mutual funds, bonds and fixed deposits will give you an annual return on investment of 8 per cent – 12 per cent at the most, but if you happen to put your money in the right start-up, the returns could be exponential. And yes, you could strike gold if the startup gets funded, is acquired, or decides to issue an IPO, and you could literally turn into a millionaire overnight!

More and more investors are shifting to the exciting world of start-ups, as it provides an opportunity to invest in innovation, to feel real ownership of the companies you invest in and a get chance to earn a high return on investment. However, investing in a start-up carries more risk, as you are investing in people rather than in a business. Eight out of ten start-ups could go bust in the first five years. But it can also give you a "big bang" return of 10X to 100 times your initial investment. It provides an opportunity for investors to get in early in a new company or technology that could completely disrupt the industry or the world.

Early investors in companies like Infosys and Wipro have seen 100X returns in the last decade, and the monetary gains are probably beyond what they had ever imagined. It also provides industry leaders an opportunity to "give back" what they have learned during their own career for the next generation. Ratan Tata, Azim Premji and Narayan Murthy are also investing their personal funds in startups as a way to pay back to the startup ecosystem and encourage the next generation of entrepreneurs. Ratan Tata, chairman emeritus of Tata Sons, has invested in 14 startups ranging from technology, food, clothing, healthcare, etc. over the last three years.

Wipro's Chairman Azim Premji set up PremjiInvest in 2006 and has built up an estimated portfolio of $16 billion by investing in over 60 start-ups including e-commerce firms Myntra (acquired by Flipkart and Snapdeal. Infosys Co-founder Narayan Murthy too has set up Catamaran Ventures in 2010 with a corpus of $96 million to help budding investors.

It has also become very easy for start-ups to raise funds from individual investors nowadays. Platforms like Let's Venture, ah! Ventures, TermSheet, Applyifi and Equity Crest are helping start-ups raise angel investments. These online deal-making platforms help start-ups by creating their investment-ready online profiles; as they know what accredited investors are looking at. They help companies in reviewing their - business plans, term sheets, legal and financial due diligence and shareholders agreement -thereby drastically cutting down the time spent by entrepreneurs on raising funds. They provide an opportunity for investors, including those in the middle-income bracket who are looking to invest their personal savings, to look at a large number of startups and invest after taking an informed decision. Also, they help remove geographical as well as time zone barriers for an overseas investor looking to invest in new ventures listed on these platforms.

And why just large institutional investors or those with a high net worth, many individuals too can come together to start investing in startups. In New Delhi, a group of doctors have come together to invest their private funds in healthcare ventures. Another emerging trend is "alumni angel groups', which has a group of alumni of an educational institution who come together to co-invest in start-ups from that institute.

In India, there is BITS Spark Angels that was founded in 2011, which is an alumni association from Birla Institute of Technology and Science, Pilani and looks at investing in start-ups started by current and ex-students from the institute. BITS Spark has over 70 angels in its network and has funded over eight start-ups till now, including Solartown, Grey Orange Robotics and Tabtor which have gone on to raise multiple rounds of funding since then.

With the common man, who is looking for attractive investment options actively beginning to consider investing in start-ups as well as the emergence of new platforms that connect start-ups and individual investors, the entrepreneurial ecosystem will only get a further boost the and encourage innovation because the most disruptive start-ups will make the most money, both for themselves and the investors.

And yes, while investing in start-ups may seem like a gamble, the fact is that if you distribute your funds across a number of disruptive startups from different domains, there's a chance that while you may lose money in 80 per cent-90 per cent of them, the 10 per cent-20 per cent that go on to make it big will change your fortunes forever.

Vikram Upadhyaya

Chief Mentor & Accelerator Evangelist, GHV Accelerator

Vikram is also the Founding Board Member of the Indian Angel Network Incubator and an advisor to projects being undertaken through the Telecom Centres of Excellence (TCOE).

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