Funding ideas for returns

For investors looking to play the high-risk-reward game, angel and crowd funding are innovative ways to fund companies at the concept stage.

After years of working for a web designing company, Nicky D’Silva plans to launch one of his own. Armed with a business plan, he is looking for funds to get started. Entrepreneurs such as D’Silva, who find it difficult to raise the initial stage capital, can take the angel investing or crowd funding route.

Angel and crowd funding investors put in their money into business concepts likely to give them good returns in the future. More, there are convenient platforms bringing together start-up companies and investors.
 

WHEN INVESTING IN START-UPS

• Angel investors need to invest at least Rs 5 lakh, 
• No such threshold limits for crowd funding 
• Look at the commitment of the management of the company to make investment decisions 
• Returns are not guaranteed
• Though it is a high-risk investment, it could garner high returns too
• Stay invested for the long term, at least five years to see returns
• Look at the business concept and the time line of operations when deciding on exit options

 

INVESTING
Entrepreneurs need to register their company with angel investing platforms such as Mumbai Angel Network or India Grow VC. They would then be approached by investors also registered with these platforms.

Mumbai Angels has 125 such investors, and they have invested in companies across all sectors. The company raises Rs 2-2.5 crore per deal with the minimum corpus Rs 50 lakh.

Pravin Gandhi, who was an active early stage angel investor and now has his own fund, Seed Fund, feels investing in start-up companies is a means of portfolio diversification for high net worth and retail investors.

Typically, you would need to invest a minimum of Rs 5 lakh as an angel investor. While there is no threshold limit for crowd funding, one can even invest Rs 5,000 in the company. Crowd funding could be an option for investors having surplus savings.

Investors who see an opportunity generally make an investment based on the company’s business plans.

RETURNS
However, there is no guarantee of any kind of returns simply because you have invested in a start-up. “These are companies with no prior track records and are at the concept stage,” says Gandhi.

Most investors should go by the hit-and-miss policy that if you invest in, say, five companies, there are chances that one out of the lot will succeed. Two might fail and the rest will do just about okay. So, you have to be intelligent about choosing the start-up you want to fund.

Choosing the right kind of start-up to invest in and the right timeline may see your investments grow. According to Saurabh Agarwal, director, India Grow VC, although crowd funding is a high risk investment, it can garner high returns.

“Remain invested in the company for at least five years. You are likely to get 40 per cent annualised return when the company starts to perform.”

As an investor, one needs to look at the same aspects you might look at while investing in a listed company. According to Gandhi, “Just like in a listed company, the largest contributor to the success of a company is always the management. As an investor, you have to stay invested for the long term to get returns.”

EXIT OPTIONS
Investors need to keep an eye on their exit options. Look at the business concept and also the timeline needed to build the product or starting operations. This will come handy while calculating possible returns and exit options.