How to Invest Your Hard-earned Money in the Right Project
- BY Jaspreet Kaur
Feature Writer, BusinessEx
- Jun 06,2019
- 11 Mins Read
Administering an enterprise properly and then ensuring that profits are more than expenses, helps to keep an entrepreneur’s status financially strong. Besides this, there are various other ways that an entrepreneur can deploy to earn an extra income apart from their business. Setting up a subsidiary business is one of the options but it will add more burden on the entrepreneur's shoulders as he would have to oversee two enterprises at the same time. However, there is another alternative that he can choose i.e., angel investment.
Angel investment is primarily a sum that an investor or entrepreneur offers to a company. The offered money helps the company to manage operations and expand its business. In exchange for funds, the investors receive a certain number of shares in the invested company. Besides this, the investors receive other benefits as well such as dividends, interest and so on.
How does Angel Investment Help to Earn More Income?
A transition from an entrepreneur to an investor is drastic. Primarily, an entrepreneur needs to possess vigilance, as well as skill, so as to become a good entrepreneur-cum-investor. Firstly, a business owner needs to understand the stock market and ascertain the key players in it. Then, the entrepreneur can gradually begin studying business models of prominent players in the business.
According to the States’ Startup Ranking 2018, “Out of 30 Indian states that participated in State Startup ranking exercise, only 10 states have designed the incentives for angels to encourage their investments in startups. The many states have organised angel investment focused events but are yet to advance to a stage where direct or indirect financial support is provided to angel investors in the state. The incentives, if provided would facilitate the creation of angel group chapters in the state.”
The above-cited figures show that there is a huge dearth of angel investors in the Indian market. This gap needs to be filled by the entrepreneurs by actively participating in funding rounds and mentorship.
- Building a Strategy
It is important to build a layout of the investment portfolio as it will help to apprehend the amount of funding one can offer in the initial stage. Investment does not always guarantee positive ROI; sometimes, it can result in losses too. So, the entrepreneur needs to keep this in mind and accordingly manage his/her portfolio.
Citing the example of Ratan Tata, Chairman Emeritus of Tata Group, who has mostly invested in startup companies—Paytm, Ola Cabs, Ola Electric and First Cry, to name a few. So far, the veteran industrialist has made 19 angel investments, out of which 2 investments did not bear any returns. This shows investment scenarios are lopsided and it is difficult to accurately predict profit or loss. Thus, the investor should be prepared to face adversaries.
- Choosing the Right Company
Profits, revenue and business backdrops don’t help to accurately apprehend future trends of a company; nature of business is also of prime importance to examine a business’s success rate. In today’s business ecosystem, internet-related business, as well as tech firms, is on the rise and thus, the investors sow money in these companies for reaping higher benefits with minimum risk.
The e-commerce platform, Amazon, is one of the leading companies in the stock market. In the beginning, its potential was doubted and as a result, renowned investor Warren Buffett has not invested in the company for a long time. In a media report, he said that he always appreciated Jeff Bezos but did not invest in his company. Now, when Amazon’s stocks are rising high, he realises that he missed the opportunity.
This shows that observing the market trend is yet another important criterion to make the right investment decisions.
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