How to Find an Investor for Startups in India
- BY Jaspreet Kaur
Feature Writer, BusinessEx
- Oct 23,2020
- 16 Mins Read
Startups are early-stage companies that invariably require a push. Stimulation can be in various forms such as capital infusion, mentoring and helping in the decision making process. An entrepreneur does not hold all these capabilities and therefore, he requires an investor. The investor reinforces the startup not just financially but mentally and socially as well. With his help, it becomes easier to lead an entrepreneurial journey smoothly in the initial years of the startup.
According to SEBI's figures, Venture Capital Funds (VCF) made INR 8,190 crore infusions in the real estate sector in 2017 whilst the telecommunication sector received INR 5,664 crore Foreign Capital Investors (FVCI). Both these infusions are the highest amid all sectors.
To help startup owners in ascertaining an investor, here are some important ways to find an investor for a startup. These methods are common for all startups despite their nature of business.
Approach Family or Closed Ones for Financial Aid
In the early stage of a startup, it becomes crucial to raise money. For that, an entrepreneur has to search for an angel investor. The angel investor can be a family member or a friend or a closed one. One can avail of financial help in two ways, that are loan and investment funds. If one takes a credit then one has to repay the loan amount along with an interest to the lender while, in the second option, the investor holds a share in the company. Besides this, he shares an equitable amount of risk with the company.
Despite approaching family members and friends, one should not take this casually. One has to exhibit seriousness in this matter and do a pitch along with a business plan. The interested investor has to know when he will get back the money and the risk factor associated with the deal. Such things have to be cleared before grabbing a deal.
Avail a Startup Fund or Loan from a Lender
If one could not persuade family members or friends to do monetary investment, then approach funds that are established for startups. These funds are created by a cohort of investors who want to help the Indian startup ecosystem.
Qualifying such funds can be difficult initially. However, once a company clears various rounds,
it becomes easier to grab investors’ attention toward the firm. Besides seeking monetary aid, a startup fund can aid in several ways such as incubation, direction and strategizing.
Look for Private Investors
Finding an investor for a startup is a daunting job. If one cannot impress closed ones in taking up the role of investors, then think of approaching private investors. The private investors are primarily divided into two types that are angel investors and venture capitalists. They infuse money into companies and in lieu, take hold of shares.
There is a difference between both the investors, which is as follows:
An angel investor is essentially an HNI that possesses capital, resources, and backdrop to facilitate a certain company. If a company manages to bring an angel investor on the board of directors, then it does not need any other investor since he will contribute significantly.
Angel investors infuse money from their personal capital and enter into the picture when a startup begins its voyage. He can have a say in the day-to-day operations of the business. To find an angel investor, there are a plethora of ways to do that with the help of the internet.
Venture capitalists are required when a company is planning to expand its business. They also step into a startup’s business when it engages in a risk involving business. In essence, venture capitalists do not infuse money from their share like angel investors but invest others’ money into a startup. They create funds and accumulate investment from other investors, which is later infused into other businesses.
They come into play when a business is established and is running smoothly. They look after various factors before making a bet such as the underpinnings of the business, management team, and business growth. They facilitate a startup to pivot and fulfill its capital requirement.
The investment made by venture capitalists is higher than angel investors. However, they anticipate a higher return of investment (ROI) in that case as well. Like angel investors, they become stakeholders of the company and will participate in the decision-making process.
These are some of the effective ways to find an investor for a startup. If you know some other ways to ascertain investors, then please share it with us in the comment section.
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