Robert Herjavec once said, “What is great about entrepreneurship is that entrepreneurs create the tangible from the intangible.”
However, to manifest his ideas into reality, an entrepreneur requires fuel i.e. investment. Although aspiring entrepreneurs in India are many, their ideas sometimes have to take a backseat until they tie up with a willing investor. The factors investors look at considering their options:
What Attracts Investors To Indian Companies And Especially Startups
As one might already have heard, a new venture essentially requires a new and unique idea. Initially, Indian startups were based on concepts borrowed from those running successfully in other countries and, in spite of investor support, did not meet with much success. Currently, however, we are witnessing a change in trend and with entrepreneurs trying to generate original ideas; investors too are showing keen interest in funding the same.
With India being a highly populated, growing economy, it is perceived as fertile ground for businesses and therefore to investors. When compared with Indian markets, those across the globe are well-served with established products/ services and testing new ventures is a highly expensive affair. In contrast, there is more scope for a promising, innovative idea to succeed in the Indian domain and this attracts investors to India.
The seasoned businessman is also aware that broadly speaking, Indian culture is undergoing change and that entrepreneurs are often empowered young individuals who want to contribute to positive social change. They are the generation that has worked outside of the country and have a strong desire to contribute to India’s development. The investor keeps a watch on this cultural impact and their hunger to succeed.
Investors always prefer to fund entrepreneurs with a keen financial sense and business acumen. Any enterprise would require a thorough financial model to succeed and an entrepreneur who lays equal emphasis on all aspects of his plan is able to assess its feasibility would be impressive to an investor and make the selection process easier.
What Investors Look For
Similarly, the legal framework is yet another aspect an investor looks into. In my past experiences, I have often noticed that entrepreneurs are driven by the passion of their business idea and often neglect the business side of running a venture. The legal framework of an organisation is the most basic requirement for any start-up. Given the fact that while dealing with a dozen regulators to get the start-up up and running in itself is the litmus test of compliance to the regulatory regime.
An investor is much comforted when he is interacting with an entrepreneur who pays attention to regulatory and compliance related aspects of running a business as well.
Liquidity is an aspect, investors are very particular about. Since the Indian stock market is fairly mature and highly regulated, it helps draw investments from outside the country. The simple reason being, that a prudent investor would want the option to have his investment convert to cash at the most opportune time to reap the benefit of the same. The primary and secondary market in India is so huge that it provides enough opportunity for investors seeking liquidity.
Lastly, investors prefer to fund projects headed by teams that are solution oriented and demonstrate the ability to handle challenges in their business environment that might be unfamiliar to the investor.
Common Misconceptions Startups Have About Investors
The predominant notion that entrepreneurs have about investors is that the latter seeks multiples of return on the investment in a short span of time and is looking to create waves. This makes them work towards unrealistic goals and eventually crash. Investors, being seasoned business persons themselves, tend not to have these expectations and simply seek reasonable returns in the long run. They require the startup team to be practical, realistic, and stable and build a solid, exemplary organisation/business over time.
It is also widely believed that investors have surplus assets and can afford to make heavy losses when financing a project. This is a misconception and, every investor regardless of his worth would take the time to assess the likelihood of their investment getting multiplied via the startup. If fund seekers were to understand this fact, it would help them create a sound business proposal and acquire funding more willingly.
Ways In Which Our Government Can Help The Entrepreneurial Sector
Startup founders are usually people with some work experience, a bankable idea, a related skill set and lots of determination. However, there are many areas where they encounter difficulty in the execution of their projects, especially in India, where taxation laws are complicated and one has to encounter of 10-12 regulatory bodies before actually getting started. One needs to have administrative, taxation, financial, legal skills and deal with several government bodies which can at times intimidate the starting team.
If the Government waived some of its regulations and taxes in the case of startups for, let’s say, a period of five years or so, it would help new firms to focus on their product, services and business in general and would also allow enough time for them to build the enterprise to meet all applicable compliances and generate enough revenue to pay taxes.
If new ventures were provided a “grace period”- a fixed period of time in the range of five years post-inception, to meet applicable regulatory laws and consolidate their paperwork together with a supportive single window government-supervised body to facilitate the process, it would immensely benefit the start-up scenario.
Also, since the Indian regulatory regime is complex enough to be daunting for even a seasoned businessman, the government can help fuel startups by letting go of several regulations for young companies which are less than ten years old. This would allow the founders sufficient time to acquire administrative and compliance knowledge and eventually turn the start-up to a sustainable commercial venture.