How investments are driving startup growths?

Everyone knows that the Indian economy isn’t doing too well. GDP growth has tanked (it reached a worrying low of 5% in the April-May-June quarter). Consumer Price Inflation is inching upwards. Industrial Production has contracted to 1.1% in August 2019. Consumer demand has plummeted. The sluggish economy isn’t really favourable for a company to thrive.

But surprisingly, start-ups are withstanding the economic doldrums. They are on the receiving end of a steady cash inflow in the form of investments. 2018 saw start-ups making the most of astonishingly generous investments. 2019 has been an even better year. In the first 7 months of the year alone, they rode a tidal wave of $4.7 billion spread out over 346 deals. In 2018, $4.3 billion was invested in 338 deals. These stats prove that start-ups are hot property among investors. Investors from across the world are pinning their hopes on start-ups even when the economic scene looks gloomy.

International goliaths like Twitter, Naspers or Meesho are raising funds for Indian start-ups. The reason why investors don’t feel discouraged in investing even when the economy is floundering is that the effects of the downturn have not been evident in how the start-ups perform and their turn-out. So they are perceived to be a safe bet. Another factor that is corralling investors’ interest is the robust growth rate of start-ups which naturally lends itself into a position to make handsome profits for both themselves and their patrons.

Unlike traditional companies that have entrenched themselves into the market and have been buffeted by the economic slow-down, start-ups have played it smart by expanding themselves into niche brands and internet or Information Technology-based businesses that are impervious to the headwinds of a slow economy.

Investors fund start-ups and start-ups yield profits, which inspires more investors to take an interest in start-ups. That is why the capital inflow that started out as a trickle has turned into a tsunami and everyone is happy. A good example of this trend is Swiggy – their initial investment from external sources was just $2 million in 2015. In 2019, Swiggy has been valued at $3.3 billion and has raised funds worth $1 billion.

There is a bevy of different kind of investors who have developed a keen interest in a start-up. Money keeps pouring in from-

  • Angel investors and groups

They are ones start-ups can rely on for funding them in the seed phase. They are flexible with the terms and conditions and these investments are less risky than traditional roles. Moreover, they freely impart knowledge and know-how. A start-up that benefited from angel investors is PharmEasy – an online pharmacy where you can get medicines delivered at your doorstep and book diagnostic tests.

  • Public sector enterprises and government

They come into the picture once the start-up has gained traction. PSEs bring visibility to start-ups and provide a steady line of credit. There is a plethora of other benefits that PSE and government investors bring to the table-

  1. Easy fund access
  2. Income tax exemption for 3 years
  3. Research and development facility

But working with PSE and governments can be tricky because there are lots of limitations and restrictions. But nobody can deny that these investors have given a tremendous boost to the start-up sector in the last few years.

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