India’s startup ecosystem has grown exponentially in the last few years. The growth of startups in India can be gauged by the fact that as of 2018, the country had 8,000 startups; from the initial 3,000 startups in 2014.
Even though the Indian startup ecosystem is smaller in comparison to the US and China, things have been changing rapidly.
The growing influx of VC money, rise of the digital economy and increasing entrepreneurial culture are cited as major reasons for this development.
Despite its advantages, there is a certain risk associated with startups in India. Some major shutdowns and controversies over the last couple of years have led to increasing scrutiny among investors.
So how do you choose what startup to invest in, during such phases?
Given below are some important factors to consider when choosing what startup to invest in:
A startup’s founding team is an important factor which comes into play when you’re investing in a startup.
If the founders are skilled, passionate, have great mutual understanding and are driven to deliver innovation, chances are high that they’re going to be a good investment.
One must carefully analyse the strengths and weaknesses of each team member before they decide to invest.
Is the startup addressing a big enough problem? Can the market demand expand in the coming years? This is a major factor to consider when investing in a startup.
If the company is solving a big enough problem that can be scaled in future, chances are that you’ll gain enough ROI if you invest in the startup right now.
Having a good idea is one thing, building it into a tangible product is another. As an investor, you’re always investing in good products, rather than just ideas on-paper.
You also need to analyse how the product you’re backing is different from competitors or what kind of features the users will most likely prefer.
Startups with a proven business model are more likely to succeed than the ones that don’t have one.
If a company has a sustainable revenue model that allows it to grow or make profits consistently, the likelihood of the business flourishing in the future is bright.
Doing your financial due-diligence is necessary before you invest in a startup. The company you’re backing must have a solid financial plan in place, with enough room for contingencies and unforeseen circumstances.
One must only invest in companies that either have strong financials or are able to correctly predict their financial health in the near future.
Although risky, startups can pay rich dividends if you’re investing in proven business models. It’s important to do your research well, developing an understanding of the terms involved.
You should also have an exit strategy in mind so you’re aware of when to sell your shares.
By following the above tips, you can ensure that you minimize risks and become a smart investor.