This is a multi-part series on how a newbie investor can be a part of the Start-up Investing eco-system With the exposure today, startups are welcomed more openly. The word – unicorn – soonicorn are becoming verbs in akin to copier as in ‘Xerox’.
This is a multi-part series on how a newbie investor can be a part of the Start-up Investing eco-system
With the exposure today, startups are welcomed more openly. The word – unicorn – soonicorn are becoming verbs in akin to copier as in ‘Xerox’.
It has become more mainstream and prospective investors are looking with more openness to investing.
I can share an incident, where in the lady of the house was enquiring actively on the opportunity to invest in startups. How can one invest? Should one invest? What is the risk of losing the capital ?
Straight to the point and direct.
Now with great power comes great responsibility.
With Start up investing getting more and more mainstream, its important for the founders and the founding team to be aware of the greater trust being placed on them.
Indian milieu typically has a saving mindset. Fixed Income and guaranteed secular income still attracts .
The financial instruments as in Mutual Funds, Direct Equity has started gaining traction and allocation in the last 24-36 months in a larger manner.
When it comes to startup investing , the investor (in this note, investor means an ‘angel investor’ & not a Venture Capitalist or Private Equity fund) who is putting his money, is taking a risk of his capital being returned multifold. This is after looking at the success of some of the companies which had raised money in the past decade and having seen multiples of the inverted amount, the start-up sector has become an investment avenue.
Many of the investors, invest in herd and word-of mouth recommendation. And the founders need to set right the expectation with and to the investor.
And before that the investor also needs to know and assess the founder and the founding team.
Founder, can be a single founder and or it can be a founder with key personnel supporting the founder. When the startup ecosystem was in its infancy, it was quite common to find a single founder or 2 or more friends coming together as founders and passionately involved in an idea and wanting to raise fund.
Today, its different. And as an investor, you need to understand the founders, the founding team, difference between them, equity stake holding, ESOP being granted, finding the right product market fit or PMF, as its addressed to .
Investing in startup has become easy as well as difficult. Difficult because one needs to be aware not only of the product and market , but also the legal language – the rights of an investor, founder.
Also, when multiple investment rounds happen, as in Series A, Series B and onwards, does the same right remain.
What about liquidation preference, or ROFR (Right of First Refusal) or ROFO (Right of First Offer), and the difference between them.
For this note, lets digest the above .
In the coming series, will share more and be an informed investor in the eco-system.
Author:
Brijesh Damodaran
