Is Start Up Investing the new gold rush for Investors?

Did you know that over a hundred unicorn startups call India their home? India has experienced a revolution in startups in the last decade. Sensing a promising area, how could HNIs and ultra-HNIs not have invested their money in India's startup ecosystem? This article will explore how investing in startups has become a gold rush for such individuals. 
 

Startup Scenario in India 

The creation and funding of startups (through seed money funding) have seen unprecedented growth in recent years. If you are assuming that the rise of startups in India is a limited and local affair, then you might be in for a surprise. Three Indian startup hubs, Bengaluru, Mumbai, and Delhi, are ranked among the top 35 global startup hubs. 

From 55,816 DPIIT (Department for Promotion of Industry and Internal Trade) registered startups in 2016 to 1,17,254 such startups in 2023 (as of 31 December 2023), the startup ecosystem in India experienced an unprecedented boom. 
 

Rise of Angel Investing in India  - The New Gold Rush 

High Networth Individuals who can provide capital to startups in return for an equity stake (or convertible debt) are called angels. Investments made by these angles are known as angel investments. 

Angel investing in startups has emerged as a promising investment avenue for high-net-worth individuals. It has been experiencing an upward trend in recent years. An equity stake (through seed money funding or otherwise) in these startups gives these investors the opportunity to diversify their portfolios beyond the traditional approach of stock market purchases.

Importantly, angel investing in India has been around for a while. The first organised angel investing network in India was founded in 2006. Over the years, this network supported several businesses through their phases of cash crunch. 

Mr Ratan Naval Tata, the former chairperson of Tata Sons, is one of India's most notable angel investors. His choice of investing in startups inspires several high-net-worth individuals in India. 

IPO v/s Angel Investing 
 

Earlier Days 

Traditionally, investors in India have reaped significant benefits through investments in initial public offerings (IPOs) of companies that have undergone exploding growth. Who could miss the rich fortunes made by investors by investing in the IPOs of existing business giants such as Reliance, Infosys, Havells, and Wipro? 

The investment landscape in India, however, underwent a significant shift after the Securities and Exchange Board of India (SEBI) implemented stricter listing regulations. It became difficult for companies to raise funds (including seed money) through this route. 

Despite this challenging outlook, angel investing, private equity investments, and angel investing have emerged as alternative sources of investment for nascent businesses. Not everyone can, however, think about private funds. 

Their inaccessibility to average investors naturally translated into their inaccessibility to average businesses. Angel investing presents opportunities for high-net-worth individuals to invest in high-growth potential businesses. In the recent decade, such investors have rushed to invest in Indian technology startups. 
 

Scenario At Present

A similar rush is now observed in artificial intelligence, space technology, and green energy solutions businesses. It is said that the best way to learn is to learn by illustrations and examples. Who can miss the success stories of angel investing in startups such as Flipkart, Swiggy, and Mamaearth?  Companies such as these highlight the transformative power of angel investing. 

In the present time, however, both IPOs and angel investments are stacked neck to neck in terms of investment volume in promising businesses. What matters the most is the stage of business cycle the business currently is in. In the case of businesses in nascent stage, it is easier for high net worth individuals (angel investors) to provide seed money funding. For more institutionalised businesses, however, public listing opens up better opportunities. 

In summary, as a high net worth individual, your primary focus should be on investing in a highly valuable and scalable business. What matters the most is the concept of the business and the entrepreneurs fueling the business. The mode of investing, that is, angel investment or investment through the IPO route is secondary.

The Verdict 

There has been a significant rise in investments made by high-net-worth individuals in promising startups in India.  As an angel investor, you get to witness the story of the businesses you believe will succeed in the future. 

We've explored that you could take a stake in promising businesses as an institutional or angel investor. Going by the existing investment trends in India, startup investments by HNIs and ultra HNIs can indeed be labeled as a gold rush.