Investment Tips for Startups
Most of the entrepreneurs are serial optimists and are hardly prepared for potential downside of the business scenarios. May be that’s the reason 9 out of 10 startups don’t see 5th year of their operations and are shut down prematurely. Recently I came across a startup of two young gentlemen who started their QSR (Quick Service Restaurant or Eat Out) @ Sec. 18, Noida, with as cofounders. It was going well in the beginning and then after a couple of months the revenue started falling and they reached to a point where they were not even able to meet their day to day expenses and they were not ready to invest further. They were left with only one option to sell their venture but couldn’t find someone who was ready to buy at the price they were seeking. Finally they ended up selling their belongings to individual buyers and suffered huge losses. Now they don’t want to ever venture into business and are happy with their jobs.
I am not writing this post, to dishearten early starters but for the significance of investing smart when you plan to startup or start with a parallel path. Budget allocation at the time of portfolio management is a most required element of any investment plan. And Startups need to work on both with an abundant buffer or plan B to keep up their risk appetite. We are working with some of the most inspiring and successful startups of this decade and we are happy that our advice and asset allocation has helped them time & again in their businesses.
Have you ever thought ofwhy do so many startups fail – it is not the idea always, at times it is the execution, the planning, lack of funds and even personal reasons? Taking the monetary element of startup as the prime objective, let us try and understand the basics of investments when you are starting up.
What should an entrepreneur keep in minds while investing in a startup? What are the basic investment tips for a startup?
In this blog I’ll answer these questions.
- Invest with RoI in mind: Investing without RoI is like playing football without the goalposts. So you need to be objective with your idea, its execution and link everything to the ‘profit’ motive, if you are venturing into a startup.
- Keep lock in period in your mind before making investment decision: Investing takes patience. Understand even if your start up is successful it may take 3-5 years to break even. Keep a lock in period of 3-5 years for the investments you make. Or start small, test, review and go easy but ultimately sustain.
- Don’t put all your eggs in one basket: It’s good to be optimistic but one should not put all his eggs in one basket. The key is to diversify your investments. To keep their business operational a no. of people takes every rupee out of their savings account or spend from their credit card. Sometimes it works and sometimes it doesn’t. If things don’t go well as you had planned what will be your contingency plan?
- Maintain a good contingency cash cushion: Calculate your monthly business as well as your personal expenses and keep aside cash equivalent to at least six months of the monthly expenses.There are Liquid Funds to invest in and create buffer related to various business expenses.
- Invest in human capital: The most important capital of any business is human capital. A no. of entrepreneurs ignore this very fact and usually the business is their brain child hence they think they know everything and can develop their employees. You can invest in small SIPs for your employees and keep their investment plans going while they join us as risk partners.
- Don’t mix your personal and business assets: We always recommend our startup clients and SME businesses to keep their business and personal portfolio’s separate. The financial goals differ for an individual and a business and that is why it is very important to manage both as different entities for investments and returns.
- Save Money: Remember Money Saved is Money Earned. No matter how small it may seem you should always save money. It could be switching off extra lights, Air conditioner, printer, laptop/mobile charger when not in use etc.
- Buy Insurance cover: Buying an insurance cover for startups and small businesses is always advised. It helps you keep the spirits up by a default reassurance. Also it saves startups and allow them to sail in unexpected and untimely business situations.