Investing is a dance between risk and return, a delicate balance that every investor endeavors to master…
In the dynamic landscape of India’s flourishing economy, Alternative Investment Funds (AIFs)/VC Investing have become an attractive avenue for those seeking high returns.
The classic story of the blind men and the elephant describes the attraction of high-risk, high-return ventures. However, in this high-risk, high-reward game, pursuing significant earnings necessitates careful thought…
Here, we examine the intricacies of AIF investments in light of India’s economic boom, taking a close look at the possible benefits as well as the risks associated with this exciting financial adventure.
In the world of Investing, this elephant takes on various forms, each part representing a different asset class and investment opportunity. The blindfold represents the inherent risk in the pursuit of the investment behemoth.
AIFs in the Indian Context:
Amid the economic development in India, AIFs have become both a maze of risks and a glimmer of hope. There is a chance to make significant earnings, but there is also a danger involved. We set out on an exciting exploration into the world of alternative investment funds (AIFs), looking at the elements that make these funds both attractive and risky for investors…
In context to the AIFs/VC investments, this ecosystem is supported by three pillars that collectively contribute to the nation’s economy and the process of generating wealth.
- Investors
- VC firm
- Start-ups/Business
Investors are typically drawn to AIFs, by the possibility of above normal returns. These funds take risks, supporting creative start-ups and ride the waves of India’s dynamic markets.
Why Invest?
Investing serves various purposes…
- To safeguarding and growing money,
- achieving financial goals and,
- preparing for retirement.
A deep comprehension of the mechanics of risk and return is necessary for this strategic move. India is one of the most active marketplaces for early-stage investments, so for those prepared to take some risks, the time seems ideal…
But then investing in this Asset class , should only be considered , post the investment in other asset classes , which have more liquidity and certainty.
Return on Investment:
An investment’s return on investment (ROI) serves as a gauge of its success. An important indicator, it shows the profits compared to the original outlay. We must understand that returns are not assured as we delve deeper into the fascinating but unpredictable world of AIF investing.
Navigating Risk:
Investments and risk share a symbiotic relationship, and understanding one’s risk tolerance is paramount. AIF investments, with their potential for high returns, often come with elevated risk levels. Younger investors may find these risks acceptable, while those closer to retirement might prefer more stable, low-risk options. ( Again age has little relevance , what is more important — is having a constant cash flow )
VC firm, managing LP Money: The Art of Wealth Creation
In terms of VC firms handling LPs money, the approach toward thorough awareness of the market, risk tolerance, and the unique requirements of limited partners informs every investment decision. In the quest of financial progress, the firm’s dedication to due diligence guarantees that investments are in line with wealth building goals by balancing risk and return.
As a VC firm Auxano, carefully curated a portfolio of startups, much like assembling a team of skilled guides for the safari. Each startup represented a different part of the investment elephant — unique, with its own risks and potential rewards.
Startup Journey: From Blind Exploration to Visionary Growth
Auxano’s engagement in the startup ecosystem extends beyond mere financial investment. We act as a strategic partner, guiding startups through their journey from ideation stage exploration to visionary growth. By providing not just capital but also mentorship and industry expertise, Auxano contributes to the building of a robust startup ecosystem.
The synergy between Auxano, the investors, and the startups created a dynamic dance within the venture capital jungle.
Auxano’s journey, evolving from SPV investing in 2016 to SEBI registered Category-I (angel fund) in 2019, then progressing to Category-II AIF in 2022, and now introducing the Gift fund, mirrors an exploration of investment avenues. This journey provides investors with diverse options to engage in and experience potential returns based on their preferences.
Approach:
Determining your risk tolerance is crucial in deciding your investment strategy. If you’re comfortable with bigger short-term swings for potential higher long-term gains, you likely have a higher risk tolerance; otherwise, a slower, steadier approach with fewer ups and downs may suit you better.
As the data speaks for itself, as of June 2023 SEBI published AIF data, investor capital commitments in this AIF market reached to INR 8,44,926.48 crore (roughly 105 Bn USD), with over Rs. 3,50,306.17 crore (roughly 43+ Bn USD) invested, up from INR 359.5 crore (roughly 0.04 Bn USD) when SEBI first regulated the industry in 2012.
The trajectory of this space looks promising.
In addition, according to IVCA data the increasing value of private equity/venture capital in India, with over $327 Bn invested across 4200+ companies since 2015, and exits totaling $129 Bn+.
As India’s GDP grows, the need for capital and the consequent wealth creation is the expectation.. Let’s be a part of the journey.
Author:
Rakesh Rana
