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Startups Have Become Asset Class for Wealth Managers

Most of the high net worth individuals are diversifying their portfolio and investing in startups.

Published: 21st December 2015 05:18 AM  |   Last Updated: 21st December 2015 05:18 AM   |  A+A-

Startups

It was a moment of pride for both Kanika Tekriwal and Sudheer Perla, founders of Bengaluru-based JetSetGo - that provides private jets and charter to customers online, when they got a call from cricketer Yuvraj Singh who wanted to invest in their company. It was in the year 2014 - barely a few months when JetsetGo was formed - as they received their seed capital.

It’s not only the celebrities, but the recent mass proliferation of ‘startups’ in the country have earned a place as an ‘asset class’ in the financial product portfolio like equities, debt, gold, silver, real estate among others - opening a window of many wealthy business families and individuals to look into.

Witnessing the success stories of Uber, Twitter and many others, most high net worth individuals are also willing to seize an opportunity to invest in start-ups. Many private wealth management firms are also approaching wealthy clients as a product mix in the asset allocation portfolio. 

“While startup investing is risky, it also provides the possibility for outsized returns when compared to other asset classes. The early-stage investor typically puts in Rs 1 crore to Rs 1.5 crore in startups,” said Himanshu Kohli, a Sebi registered investment advisor. Adding that “the overall asset allocation towards startup is about only 1-2% of their total portfolio currently.”  

Puneet Dalmia, Managing Director of Dalmia Bharat Limited, also happen to invest in JetsetGo this year in his personal capacity. Apart from JetsetGo, he has also invested in many other emerging businesses, according to Track.in - a company that maintains data base on startup deals. 

According to experts, it has been witnessed that young entrepreneurs beaming with great ideas have been approaching small boutique private wealth management firms, to find some investor who can not only fund them but can also guide them to make them big. While a handful of India’s super-rich are parking their personal wealth in emerging businesses, others are doing it through angel funding networks or family offices.

From being a high-risk asset class for a select few, angel investing is evolving into one of the most sought forms of investment in India’s maturing startup ecosystem. The contours of investment in the country have undergone a makeover in the last two years. This year, the total number of venture capital deals surpassed the total number of private equity deals. In the first half of 2015 alone, as many as 363 venture capital deals were sealed - more than three times the number of private equity deals, which stood at 99, according to Grant Thornton.

According to market experts, it is all about the risk and reward ratio. Most medium to large business families are willing to invest their time and energy to understand the ideas and plans of fledgling companies. “Apart from looking at the potential returns they also take active part in building the management team of the business,” said Amit Sharma, founder of Pinnacle Wealth Management firm.

Most of the high net worth individuals are diversifying their portfolio and investing in startup from the spare money they have after investing in the normal class investments. Ashish Kapur, CEO, Invest Shoppe India, a wealth advisory firm, says, “It is all about an investor believing in the entrepreneural idea and making it succeed. Once he is convinced about an idea, he backs it even if it means doing so in his personal capacity.”

Though many believe that almost 70% of the startup’s are likely to fail, but they still open the window of hope to many. It is also said many of today’s minnows will be the big fish of tomorrow, it remains to be seen how investors take up the bet on investing in this new asset class.

 

WINDOW OF HOPE

■ Witnessing the success stories of Uber, Twitter, most high net worth individuals are willing to invest in start-ups

■ The early-stage investor puts in Rs 1 crore to Rs 1.5 crore in startups

■ Many private wealth management firms are  approaching wealthy clients as a product mix in the asset allocation portfolio

■ Angel investing is evolving into one of the most sought forms of investment in India’s maturing startup ecosystem



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