Investing in a start-up – is it an asset class at all? Not for the faint hearted.
In India, most of us have been conservative investors. We have seen high interest rates over the years and we have been happy and content to get 7-10 % in seemingly secured bank fixed deposits or government backed schemes like PPF, POMIS, SCSS etc. Investing in shares and Mutual funds was considered to be risky too. Investing in a property was supposed to be a safe proposition. Not anymore.
Times are changing. The country is moving towards a low interest regime and most of us have to try and find new avenues for investing. The Rich are getting richer as they are able to invest in high risk high return avenues like Share portfolio management, Property portfolio management, Private equity/start-ups, P2P lending, Commodities, Currencies, Hedge funds etc. No doubt they have extra cash to invest and a set of brilliant advisors, but they also play to win. Most of us play not to lose, so we get moderate returns.
As the internet grows and knowledge sharing becomes easier, it is easier to invest in these new areas which were, till today, mostly available to the Rich and super Rich. Investing in start-ups requires deep knowledge and analytical skills. It has become possible due to various advisory services and the emergence of crowd funding platforms wherein you get information about the various investment possibilities within a reasonable budget. The number of start-ups, disrupting the older way of working, is increasing day by day as technology becomes the differentiating factor.
It’s undeniable that investing in start-ups is extremely risky; the excitement, however to invest in innovative ideas and be a part owner of a life changing technology more than makes up for the risk. Who knows, if you are lucky, the multiple returns can be icing on the cake.
Most wealth advisors advise to take a shot at private equity (investing in start-ups) and/or start-ups, but limited to 5% of your net investible surplus. This is also one of the ways of staying connected to the latest technologies and ideas. Place your bets on passionate, motivated, flexible, adaptable and hungry promoters with requisite skills and experience to take forward the sustainable business idea. Remember though, no one can predict the success or the failure of any start up. The start-ups success stories are glorified with multiple returns and the unsuccessful start-ups go down unsung.