Invest in startups

• One of the biggest reasons for investors to invest in startups is to get a very high return on their investment. The returns are typically in multiples as against percentage returns in the traditional investment instruments.
  Investing in startups also allows investors to diversify their portfolio. Along with traditional instruments, investors allocate a part of their funds, depending on their risk appetite, to startups. A startup does not follow the patterns of the traditional instrument. Since some of these startups are only in the idea stage, development of product, launch of MVP, testing, actual launch on the product etc. signify a milestone usually associated with an improvement in valuation and results in value creation for the investors. Whether other instruments like the stock market gain or lose or whether there is a boom in real estate or whether gold has lost value have very little to no impact on the start up valuation unless it is a field directly related to the product developed by the startup.
  Investing in startups also gives a sense of fulfilment for investors since they are a part of a set up that might be contributing to some path breaking technologies or business models. In their regular course of investment, this feeling of achievement is completely missing.

There are guidelines provided by SEBI to who can invest in startups. Very loosely speaking, it is meant for HNIs or institutions. But technically, a person who has net tangible assets of Rs. 2 crore (excluding the place of primary residence) and has had either early stage investment experience or been a serial entrepreneur himself / herself or has been a senior management professional with at least 10 years of experience.
For institutions, in case of LLPs or company’s the network of the company should at least be Rs. 10 crore.
For an AIF they have to be registered under SEBI AIF Regulations, 2012 (‘SEBI AIF Regulations’) or a Venture Capital Fund (VCF) registered under the SEBI (Venture Capital Funds) Regulations, 1996.

There are different ways in which one can invest in startups.
One can directly get in touch with startups looking to raise funds, understand their business model, product market fit, projections, etc., arrive at a valuation and then invest in their business directly. Critical thing here is to make sure the legal contracts clearly lay out the details of the agreement – investment amount and investment period, roles and responsibility if any, number of shares being allocated to the investor, the type of shares being allocated, etc.
Over the last few years, there are multiple platforms that play the role of a marketplace bringing in the startups and investors together to make it easy for the investors to invest in startups. If one is registered investor, they can sign up with these platforms, attend pitch days (wherein startups present their ideas) and then decide on which startup seems like the best fit for them.

Returns on startups is what attracts the investors the most. The returns are usually in multiples of the amount invested. A lot depends on the stage of the startup, the fund amount being raised, the business case, the valuation, further need to raise funds and so on. A startup in an idea stage is “cheaper” to invest in, meaning the valuation will be lower hence giving a higher equity stake for the same amount than when the company has created a product or has revenues to show for.
The returns also depend on the time that one remains invested in the startups. Typically, the valuation will keep increasing in every round of fund raising. So the longer one waits, the higher the multiple.
But the biggest caution is that these returns come with a risk. The earlier the stage of the startup, the higher the risk. Being able to asses an idea accurately is far more difficult than assessing an ongoing business with revenues and balance sheets. Hence, the highest returns are for the biggest risk takers, the investors who invest in the idea stage. Failure of a startup could mean losing on the entire amount that was invested. Again, the likelihood of a startup at an idea stage failing are higher than one that has an ongoing business with a positive outlook of revenues, profits, etc.

RBC offers a unique solution to the investors. Racehorse Business Consultation works with startups at every stage. RBC also helps the startups through their entire journey – ideation, product development, assessing the product market fit, research, GTM strategy, brand building and scaling. For such startups, since RBC is so deeply involved with these startups, the process of due diligence is that much stronger.
Once the startups decide to raise funds, we also help them with projections, business cases and pitch decks making sure that all the information an investor needs before investing is available and is justified.
Even for startups not directly associated with RBC, we ensure a thorough due diligence before recommending a startup to the investor, thereby reducing the risk for the investor.

RBC provides a host of services for start ups like services related to starting up, Fund raising, Mentorship for startups and collaborative and organic growth.

We also provide services for investors, helping them invest in start ups.