A guide to investing in Indian startups

As on November 2022, India is home to about 84,012 startups and over a hundred unicorns (startups with a billion-dollar valuation), according to the Department for Promotion of Industry and Internal Trade (DPIIT).

The third-largest startup ecosystem also boasts a wide array of investors—venture capital firms, angel investors, HNIs, family offices, etc.—investing millions of dollars into Indian startups.

As an investor, your ultimate goal will be to gain maximum profits, but there will be certain challenges along the way. 

However, these challenges should not deviate you from the idea of investing in a startup. If anything, you could be putting your money in the next unicorn! 

Here’s a comprehensive guide on how to invest in startups.

Do your research

The first obvious step is that you need to research. By this, we mean to discover startups that align with your investment goals or industries that interest you. 

One easy way to do this is by keeping updated with financial news, market behaviour, industry reports, etc., which will assist you to understand the investing conditions. 

Engage in networking 

Indian startups, new or old, have one thing in common—they all attend business events, conferences, or pitch gatherings. You can also participate in such meetings to get information about the latest potential startups and what they have to offer. 

Understand the business model

To learn about any company, one should see their business model. Start by evaluating the startup’s target audience, competitiveness, and growth potential. Try to find a business with a unique idea, a scalable model, and, most importantly, profitability. 

Explore market size and scalability 

The most crucial element of a startup’s business is its market demand and prospects for scaling. It would be difficult in the long run to sustain a unique product with a small market size.

Businesses must consider factors, including the company/product’s unique selling point (USP), market barriers, and revenue streams. 

Evaluate founders 

A strong team of founders is the key to success for any startup. Examine their market experiences, skills, past projects, and vision. By doing so, you can assess their abilities to fight to the top and show profitable returns to investors. 

Check potential risk 

Before you invest in any startup, analyse the potential risk. As an investor, your focus should always be to lower the risk of losing capital. One way to tackle this is to diversify the portfolio by investing in startups in various growth stages across different industries. 

Expert guidance

Investing in startups will require some expert knowledge, and consulting a professional is always a good idea. Speaking to an experienced individual with relevant investment skills, especially a deep understanding of Indian markets, can be helpful. 

Things to consider before investing in startups

Here are a few qualities you should look for in a startup. 

Innovation and scope 

The more unique a product, the more its scope is. Understanding the product to evaluate a company’s idea, and those offering an effective solution to a problem are ideal. 

Target consumer

Take it as a green signal to invest in a company if a startup’s target consumer is easy to reach or massive because chances are that it will meet the consumer demands, thereby giving good returns. 

Funds usage 

As an investor, you should discuss with the founders how the funds raised will be used and the structure of getting profits. 

Equity 

The equity offered by a startup should be of value to you. Ask yourself if the investment and sale ownership are profitable. If yes, then you can go ahead. Look at these factors to make better decisions before you invest in a startup. 

Happy investing!