Dalal St has a New Portfolio: Startups

Mumbai:
Entry of regular stock market investors fuelling a new frenzy in startup funding in the country
For Ashok and Anirudh Damani, the meeting with the 18-year-old -one of those self-styled `futurepreneurs’ one keeps hearing of these days -seemed futile. Nonetheless, the father-son duo obliged as this tête-à-tête was lined up by Venture Nursery, the angel investor group that the Damanis were a part of.Minutes later, a lanky high schooler walked in. His tattered jeans, casual stone-wash shirt and a stubble masked all sense and purpose of highstreet business. “We were discussing business and capex with a schooler. At first we weren’t sure; but as we progressed, this guy made sense. After a few more meetings, we decided to invest in Oyo Rooms,“ says Anirudh Damani, whose father Ashok holds trading rights on major stock exchanges in the country and runs a few proprietary trading books.

For decades, the Damanis have been tracking the stock-ticker.They knew the traps and pitfalls of investing in listed equities. But startup funding was a new animal. Along with a few other investors, hey worked out a valuation ma rix and wrote a cheque of ` . 3 crore o bankroll the young man. Oyo Rooms, an aggregator of rooms in budget hotels, was valued at ` . 1,400 a share. The entry of regular stock market investors like Damanis is uelling a new frenzy in startup unding. In 2014-15, Mumbai Angels, a platform for angel investors, screened more than 500 business proposals -the highest it has handled in a year till now. About 10% have received funding as against 1 or 2% in the past, said a Mumbai Angels member.

In a portfolio of 10 startups, 3-4 investments have to perform exceed ngly well to make up for other bets hat backfire, says Sanjay Sinha of Citrus Advisors, which recently nvested in 2 technology startups.

The numbers and arithmetic are amiliar. But it hasn’t slowed the rush of investors.

THE LURE & CHARM

In less than two years, Oyo Rooms raised three more levels of fund . 6,000 a share, then at ing-first, at ` . 36,000 a share and the last one at ` . 1.10 lakh per share -multiplying ` the value of Damani’s stake over 100 times.

“Angel investing is tougher than picking listed stocks… The risks are larger; so are the gains,“ says Ashok Damani, who currently holds shares of more than 30 startups in his portfolio. Few listed equities, according to him, ride on new businesses or ideas. “Besides, you are aiming at 5-10 times higher gains if you are investing in startups. The best that equities can give you is 15-20% a year,“ he said.Startups like Oyo Rooms, online beauty store Purplle.com, selfdrive car rental provider Zoomcar.com and credit scorer Inventure, among others, are attracting fund ing assistance from investors, who otherwise parked money in listed equities, bonds and real estate.

They are drawn by comparatively small-ticket investments and lure of higher returns.

Most of these companies have turned two to seven times more valuable in the past two years, post ing significant gains for sharehol ders.

Take the case of Purplle.com: the share has gained from ` . 2,000 a share in 2013 to ` . 6,000 per share currently. Zoomcar.com has al ready received institutional fund ing from Sequoia Capital at eight or ten times valuation. Start-up watchers expect businesses like In venture to gain 30-40 times in value over the next few years.

“Angel investing is no longer the hobby that it once used to be. It is now an emerging asset class for HNIs, who up till now invested in equities and bonds,“ says Padmaja Ruparel, president of Indian An gel Network. “Angel investing would probably offer the highest gain among most asset classes. The returns here are real and not MTM-linked,“ adds Ruparel.

SUCCESS RATE

Angel investing is about betting on ideas and a bunch of dreamers.

Investment horizon is about five to seven years but a profitable exit could take longer.

“Success rate of startups could be plotted on a bell-curve. In a portfolio of 40 startups, about 10% end up giving blockbuster returns ­ often as high as 20-100 times. Almost 20% would perform fairly well, about 50-60% would just yield principal plus 10% interest and 10-15% would simply fail. When I say fail, I mean we’ll have to simply write off those investments,“ says Anirudh Damani.

Picking an idea is critical. There are times when investors park their funds in grandiose business plans which may turn out to be either unrealistic or commercially unfeasible. Such investments may be a drag on the portfolio.

“Most startups we find in India are copy-paste ideas from the west.

In fact, you’ll be able to find parallels in 90% of the cases presented before you,“ says Ajit Surana, managing director of Dimensional Securities, who started investing in startups five years ago and holds a portfolio of 20 companies. Startup investors check promoter background, growth opportunities, and scalability of business ­ just as they do before putting money in an IPO.But while startups bank on ideas, veteran stock market investors lay equal importance to credentials of men behind such new outfits before committing funds. “If the management is no good, it’s no different from investing in a penny stock,“ says Surana. After all, no Dalal Street man ever dreams of ending up a broken angel.

Source: The Economic Times

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Author:

Neeraj; an entrepreneur & a visionary in the field of Railway, Defense & Automobiles, is a graduate in commerce and a Harvard Business School Alumni. He’s an expert in govt. liasoning & contracting and has an exceptional network & connections at both local as well as global level. He’s an expert in Market Strategy & Planning and has served number of overseas companies as an advisor/consultant. He takes a profound interest in upcoming startups & is very receptive towards ground-breaking ideas & innovations. He likes to brainstorm those ideas and if the values & philosophies matches; he is even ready to invest his resources, serve as a mentor or act as an incubator to futuristic businesses.

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