Startup Investing: The new gold rush for HNI investors

The last decade has proved to be a remarkable journey in terms of the creation and funding of startups. India has emerged as the 3rd largest ecosystem for startups globally, with over 1,12,718 DPIIT-recognised startups by October 2023, as compared to 84,012 by November 2022. 

The investment landscape is undergoing a profound transformation as High Net Worth Individuals (HNIs) increasingly direct their wealth into the burgeoning startup ecosystem. The year 2022 marked a watershed moment, witnessing an unprecedented influx of capital into startups, indicative of a strategic shift in investment behaviour. Driven by the allure of substantial returns and the excitement of fostering innovation, startup investing has emerged as the contemporary equivalent of the gold rush of the 21st century. 

The rise of startups:

In an era defined by rapid technological advancement, startups have emerged as the epicentres of disruption and innovation. They serve as catalysts for pioneering products and services with the capacity to redefine market dynamics. For HNIs, participation in the startup space transcends traditional investment opportunities; it represents an opportunity to contribute to a lasting legacy. There are ~12,000 HNI and UHNI, where ~ 9,000 are low-risk takers and happy to invest in pre-seed and Series A rounds, while the rest prefer to invest in pre-revenue and ideation stage companies. 

Multiple HNI investors have shown to be investing significant amounts into various start-ups such as the Kamath brothers are expected to allocate ~ Rs 1,000 crore to Indian startups through their investment firm Rainmatter Capital. Similarly, Vijay Shekhar Sharma, founder, and chief executive officer (CEO) of Paytm, Zomato CEO Deepinder Goyal, and Car Dekho CEO Amit Jain, are backing up startups. Celebrities are also turning angel investors. 

Let’s take a look at some of the upcoming startups that generated high investment returns in recent years.

Flipkart: Flipkart, an online marketplace that was founded in 2007 received early funding from a group of angel investors, including Accel Partners and Tiger Global Management, and has since grown to become one of India’s most successful e-commerce companies. In 2011, Flipkart raised a round of approximately ~ US$ 20 Million at a valuation of around $1 billion.  In 2018, Walmart acquired a majority stake in Flipkart for $16 billion, making it one of the largest acquisitions in the Indian startup ecosystem. It showed an absolute growth rate of 1500%. 

OLA: OLA, the cab ride-hailing platform from Bengaluru received early-stage funding in the year 2012, led by Tiger Global Management and Matrix Partners India. The funding amount for this round was $20 million at a valuation of around $210 million. In 2024, OLA is valued at $1.88 billion which shows an absolute growth rate of 795%.

Mamaearth: Mamaearth, is a popular Indian skincare and haircare brand that focuses on providing natural, toxin-free products for babies and mothers. Founded in 2016 by Varun Alagh and Ghazal Alagh, the brand emphasises sustainability and ethical sourcing in its product offerings. Mamaearth secured $1 million in Series A funding in 2018 at a valuation of approximately $13.8 Mn. The round was led by Fireside Ventures and other investors. In 2023, the Mamaearth was valued at $1.2 billion. This shows an absolute growth rate of a whopping 8,595%. In other words, if someone had invested Rs 1 lakh in Mamaearth in 2018, the same Rs 1 lakh would have been worth Rs 85.9 crores in 2023.

Physics Wallah: Physics Wallah is an online platform founded by Alakh Pandey, offering educational content primarily focused on physics for students preparing for various competitive exams in India, including IIT-JEE and NEET. Through video lectures, study materials, and live classes, Physics Wallah aims to simplify complex concepts and provide effective learning resources for students. Physics Wallah raised $100 million at a valuation of $1.1 billion & was valued at $3.3 billion in 2023 which shows an absolute growth of 220%.

BharatPe: BharatPe is a financial technology company based in India that offers digital payment solutions for merchants. It enables small businesses to accept payments using QR codes and provides other financial services such as lending and insurance. In 2019, BharatPe raised $15.5 Million in a Series A funding round led by Sequoia Capital & Beenext at a valuation of $450 million. Today, BharatPe is valued at $2.7 billion which shows an annual growth of 500%. In other words, an investment of ₹1 lakh in 2019 would be worth ₹50 crores today.

Angel investing in India has emerged as a compelling avenue for HNIs seeking to diversify their investment portfolios beyond conventional stock markets. Historically, Indian investors have reaped significant rewards through IPOs of companies that underwent exponential growth. Notable examples like Havells India, Reliance, Infosys, and Wipro exemplify the power of early investment in growth-oriented companies.

However, the investment landscape underwent a significant shift post-1995 with the implementation of stricter listing regulations by SEBI. This change catalysed the rise of angel investing, venture capital, and private equity funds as alternative funding sources for nascent businesses. Unlike the structured and accessible stock market, the private market remains relatively unorganised and less accessible to the average investor.

The transition from IPO-driven investment to angel investing reflects the evolution of the Indian market. The total value of IPOs in India is expected to be around $6.15 billion by the end of 2024 compared to $5.82 billion in 2022. On the other hand, angel investments in India are expected to be at $7 billion by 2025 compared to $2 billion in 2022. Angel investments, once considered rare, now present opportunities to invest in emerging companies with high growth potential. Success stories from companies like Flipkart, Swiggy, OYO, and Mama Earth illustrate the transformative power of angel investing.

The outlook for HNI investment in startups in 2024 is exceptionally promising. If the first quarter is an indicator, 2024 promises to be a great year for angel investments. The excitement of being part of pioneering ventures, coupled with the prospect of substantial returns, makes startup investing an increasingly attractive option for HNIs looking to diversify their portfolios and invest in progress. Investing requires research, patience, and a long-term perspective. But for those who understand the game, it’s a chance to ride the wave of innovation and potentially transform net worth into generational wealth.

(The writer is Founder & CEO, Planify)