- KNOW YOUR INVESTMENT SEEKER: The first cardinal rule of making an investment is to know the organization looking for investment and the people behind it. The structure and brain of an organization is the first guiding principal for making an investment. No one is likely to use the hit and trial method while investing, rather an investor would be prompted by the spirits behind the organization. An encouraging factor is to identify and understand the brain behind the seeker, their entrepreneurship and the ability to grow.
- CONNECTING WITH YOUR INVESTMENT SEEKER: Once a general understanding about an investment has been achieved then the next goal should be to develop a connection with the seeker. After the exchange of general mails, meetings should be scheduled - telephonic or personal. A regular touch before making an investment is a must, as this would assist in getting first hand information whereby the seeker would share his project and other details. The connectivity between the investor and seeker has to be pre-established before entering into a relationship.
- EVALUATING THE PROJECT/INVESTMENT SEEKER: Every startup or the innovator considers one’s project as enterprising & very profitable but that requires a strong evaluation from the perspective of an investor. An investor needs to know the worth of the project viz. popularity, technical feasibility, business growth, local or global. Similarly, an overall review of the people behind the project needs to be made which means identifying their knowledge, background as well as financial background. In case of a seeker involved in a previous project which failed, extra caution needs to be taken. On the other hand, a successful seeker would attract more and sound investors. The risk gets minimized once a decision is taken after having concluded due diligence on the project as well as on the investment seeker.
- DEFINING YOUR GOAL: Every investor needs to know the goal one aims by such investment. It may not always be necessary and important to see growth in revenue; rather it may be the fame & reputation of being part of a very successful project. Similarly, at other times one may not look out for immediate returns but returns over the passage of time. Once a goal has been determined then milestones need to be fixed. The goal should be understood as a period and gain of investment and not merely return of the investment.
- LEGALIZING THE RELATIONSHIP: No relation co-exists for long time unless supported by a well reasoned legalized document. Investors and seekers relation does not stand long where it is based upon oral understanding or weak documents. Gone are the days when documents were created just for the sake of remembrance, today the documents are created to strengthen the relationship between people/organization. A well defined and understood agreement not only encourages people to work together but equally discourages them to fall prey of unnecessary risks. Every investor must start their relationship with the seeker depending upon documents like Letter of Intent (LOI), Founders Agreement, Confidentiality Agreement, Mutual Non-disclosure agreement, Term sheets, Shareholders agreement etc.
- UNDERSTANDING THE FLOW OF RELATIONSHIP: As an investor one would need to know what information and at what level the same would be shared by the seeker to the investor. The expectation as well as the obligation between the investor and seeker needs to be defined with clear understanding for mutual benefits. The flow of relationship has to both ways and not merely one way. A standard of charter or report can be defined to encourage transparency which would strongly glue them together. The compatibility between two increases with defined flow of relationship and ideally reduces the fears of an investor and helps in the strong growth of relationship.
- TAKING CALL TO QUIT FROM THE PROJECT: A nomadic journey never lands a person anywhere, rather a defined strategy to achieve a destination has more probability of being successful. Once a goal has been setup then one should be clear to take calls on the exit or review the goal. In certain cases investors prefer periodic exit from the project rather than the same being dependent on financial gains. One needs to take call on the exit from a project rather than repent at the end, especially when the project does not look to be going. The investor will have a clear understanding as to their achievement in case they are open for review and exit from the project instead of bound with time limitation.
Tuesday, November 17, 2015
Investment is like soil which requires care and nutrients to help plants to grow. Sometimes it acts as a soft bed and on other occasions it works as a catalyst. In financial terms, investment means financial input along with other support directly connected with the growth of a company. It is well said “demand and supply determine the economic growth”. This fact exactly explains the flow of investments in innovation industry. An innovation can be described as something new which is majorly useful but did not exist till sometime back. An innovation may happen in any sector or industry viz. IT, FMCG, Education, Automobiles, Communication.
Investment in an industry may depend upon different factors which can be grouped as:
PROSPECT OF GROWTH: The probability of an investment is directly proportional to the profitability of an innovation. An innovation having an early success is always likely to attract huge investments. In the recent past, we have seen that companies that have come up with new and innovative concepts like Amazon, Flipkart, Snapdeal, Uber, OLX, Quikr, Paytm, have attracted huge investments. Investors are always attracted to invest in innovations where short term gains can be seen. Not only that, investments can also be seen in industries such as fashion, IT and Real Estate. The concept of investment remains the same - whosoever invests money, looks for growth. An investor takes a call on the period of investment which in turn determines the expected returns. Largely, one can say ‘Investments In Innovations’ go hand in hand but at the same time the investment are equally made in other running industries. Investments were made in more than 662 start ups in the first nine months of 2015 i.e. till September 2015 which means - 2.42 deals a day.
QUANTUM OF FUNDS: The requirement of fund determines the level of investor willing to enter into an investment. It has been a common practice that an investor makes an investment in different scales depending upon the requirement of the start up. Sometimes a big investor invests in startups with low investment and then takes up further investment to scale its growth. In countries like India, startups have boomed and attracted huge investments. In the first half of 2015, startups gained investments of more than $3.5 billon. As per the number of investors in the total deals are concerned, nearly half of the deals of startup investments were for less than $20,000. A big volume of private equity has been invested in such deals. Apparently, startups looking for smaller funds attract more investors rather than startups aiming for big funds.
LOCATION: The location of a startup plays a pivotal role in attracting investments. This further determines the growth and the relationship between the two. Remotely located startups grow only if they are attached to a particular sector like agriculture, else they struggle hard to seek funds. The growth of startups has apparently been more in metropolitan cities.
RISK: The fear of losing investment is balanced by the allurement to multiply the investments. Investors look out for a balance between the two. Investment is indirectly proportional to risk and directly proportional to allurement. No one invests in projects where risk of losing investment is higher. Therefore, investors prefer to draw a line where risk can be evaluated for them to take decision about investment. The chances of investments being at peril have risen due to the way startups are mushrooming. With such an increase in the number of startups, an optimum level is likely to be reached. Investors have to become more cautious.
ACCESSIBILITY: Startups have boomed in countries like India at places like Indian Silicon Valley i.e. Bengaluru and at the best in big metropolitan cities like Delhi, Mumbai. Investors are equally available in other areas where the startup projects are coming up. In all events, the close interaction between investors and startups is always preferred. The more accessible a startup is to the investor, the more viability of investments and the higher chances of growth.
FASCINATION: An unexpected increase is happening where every entrepreneur is contemplating or has contemplated to get into startup venture. Similarly, every investor is aiming at one or the other startup to multiply the investments. The boom of new ventures with upcoming projects like e-commerce, health, delivering consumer services/goods, has magnificently shown a rosy picture to the investors which seems like a fascination. On the other end the lackadaisical of investment opportunities in real estate, yellow metal and share market has further widened the scope of investments in startups.