There is one thing that all entrepreneurs must’ve realised in their lives and that is “funding is highly inevitable”. The current funding scenario is broadly categorised under the following sources.
- Bootstrapping
- Friends and Family
- Accelerators and Incubators
- Angel Investors
- Venture Capital
- Equity Crowdfunding
The first three can work out very well if you have the right idea alone, but once you start scaling up, you need to find the right source of investments. If we look at the 2014 funding scenario in India it was observed that:
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VCs/ PEs
In 2014, India saw 70+ active investors who carried out more than 100 deals. The year 2014 saw investment of about USD 1818 million made in the Indian startups (For 2014, investment commitment in startups excluding e-commerce was USD 743 million). The overall average deal size of USD 7.7 million (Average deal size in B2B segment is USD 5.7 million whereas average deal size in B2C segment is USD 9.4 million).
More and more VC/ PE investments are happening in the expansion stage. In 2014 about 186 million USD was invested in startups who were less than 2 years old whereas 1632 million USD was invested in startups who are 2-5 years old.
About 63% investments were made in the B2C segment, 32% in the B2B segment and 5% in b2B / B2C segment. Companies in NCR and Bengaluru attracted a large part of VC/ PE investments followed by Mumbai , Chennai, Pune and then others.
Angel Investment
2014 saw 90+ Angel investors investing in the Indian market. More than 73 angel investment deals happened in 2014 in which investments worth more than 32.2 million USD were made. The year saw more than 10.6 USD invested in startups that were less than 2 years old and more than 21.7 USD invested in startups who were 2-5 years in age. 60% investment was made in B2C segment, 34% in B2B segment and 6% in B2B / B2C.
Read the full article on How India Is Turning Into A Startup Nation !
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Even back in 2014, India had over 4000 startups, and for a nation of 1.3 billion where everybody is capable of coming up with different idea, we have only 200+ VCs and Angels. If you looked at the number of Angel/VC funded startups, it is evident that there had always been a case of mix and match when it comes to startups finding the right investors and investors finding the right startups.
In search of an alternative solution to bridge this gap, Techstory spoke with Karanvir Singh, Vice President Business & Head Startups, GREX.
Karanvir Singh
The Birth Of The New Source Of Investments
In early 2012, a group of technology entrepreneurs, venture capital professionals, private investors, economists, former regulators and engineers joined together to solve the biggest problem in the Indian start-up ecosystem – a structured, easy and convenient way to raise capital from high quality, approved angel investors. They collaborated with entrepreneurs, banks, regulators and exchange ecosystem to create a new protocol to make this process seamless. After two and a half years of ground work, dozens of strategic partnerships, and regulatory discourses, GREX was born in mid 2014.
GREX (or GREX Alternative Investments Market) is an innovative financial services institution involved in building solutions that combine high finance with high technology.
The fundamental idea behind GREX is to bring all the private investors who are on the lookout for investing their disposable amount in a promising business. So far, their investments have been limited to share markets, mutual funds, insurances, gold and land, and all of these can fetch upto a maximum of 10-30% ROI. Investments in Startups, which can sometimes yield as high as upto 3 times ROI, were in the hands of the Angels and VCs alone.
“Before reaching out to the masses, we had to test this on our own, and started up exactly how others would do. We approached the private investors, explained them about the process and it’s benefits. Having come from a VC background, the pain points of investing and the problems faced by startups were already known” says Karanvir Singh
Check out the video:
youtube https://www.youtube.com/watch?v=W9gJWY_guM8
GREX Model
GREX’s system is entirely automated and there is no physical transfer of money or shares. In conventional fund raising where startups have to wait for a period of 3-9 months to get approved, a lot of startups fail during this waiting period. GREX has a complete stock exchange model for startups and this enables to complete every round of funding in 30 days.
“Most of the times Startups are either overvalued by the founders or undervalued by the investors, in order to avoid this all the startups listed go through an automated discovery mechanism which decides its valuation.”
The fundamental requisites to be listed as a part of GREX are
For Companies
Before a startup goes live on the platform, it is scrutinized and handpicked with due diligence. The startups in the platform are rated based on their performances, and this gives the investors a clear idea before investing. Hence information is very critical in the platform, every information has to be updated and it is cross verified with third angle information in real time for its credibility by the operations team. The broad rule in the deciding mechanism during valuation is that the company should’ve been at least a year old, generated a revenue of INR 10 lakhs or show a traction growth of 20% m-o-m, registration, alliances or MOUs.
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For Private Investors
The need for capital is huge and as mentioned earlier, the principle idea behind GREX was to connect the private investors and unlisted companies. There are stringent KYC followed, individuals with disposable incomes, demat accounts and experience in business are the ideal qualities to be listed as investors in the GREX platform. For privacy reasons, access levels are given to the investors, this ensures that not every person gets all the details of a company. The current listed investors are majorly industry veterans who are looking for companies that are driven by innovation.
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The Value Addition
Unlike VCs who majorly invest in companies that become the next unicorns, private investors are comfortable with small companies who can give them two to three times of their investments. In order to become the next billion dollar business, a huge capital is required and the success ratio of such companies is 1 out of 10 and the failure rate usually lies between 60-70%. This might’ve been due to the fact that once the companies have gained investments, they don’t invest in the right areas; they spread too fast and too thin.
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In order to avoid that, every company are having a sponsor. Sponsors are successful entrepreneurs, who come from a rich experience of investing at the right place and time. They help, specifically hand holding the listed companies and guide them on every aspects once their funding is received.
They have 12 companies in the pipeline, and for their 2016 journey they are looking to get investments for over 80 companies and register as much companies as possible. They have alliances with accelerators from Indore and Angels in Chandigarh and intend to cover all major cities like Pune, Delhi, Bombay, Bengaluru, Hyderabad and Chennai.
Both companies and private investors can make use of this platform for their own accreditation. Once the company gets listed in GREX, this gives a value to the company when they approach for external sources of funding too and private investors who’ve invested in successful companies also share similar benefits.
Image Source: finexecutive.com