Startups comprise the newest asset class in the portfolio of an investor. How does it fare vis-à-vis the stock market?

A startup is many things. The newest role that it is playing is that of an asset class. So, where does it figure today in the portfolio of an investor?

It is not necessary that the investor should possess the skill to digest the balance sheet of a startup or even the competence of judging market performance over a period of time, as there are people who earn their living doing just that. We are talking about someone who possesses a corpus of, say, Rs 5-10 crore. What does such a person do with it?

One option is, of course, to splurge it in one day, like Nita Ambani once claimed she could do. The other option would be to hit Dalal Street. Stock is a ubiquitous presence in almost every investor’s portfolio today.

An addition to the generic investment vehicles is the startup. There are two main reasons behind this. Firstly, the global market meltdown has taken a toll on both stocks and spirits.

Secondly, the new wave of entrepreneurship has spawned several startups with decent balance sheets and success rates. The best part of the deal is that the stinky winds of a choppy market do not affect a good startup. Hence, the investor today sees a startup as a separate investment vehicle altogether.

Why startups?
A seasoned angel investor has a very potent reason to invest in a startup. Joe Fernandes, the CEO of Total Environment and an angel investor, recently added startup investment to his portfolio.

His primary reason for venturing into this new asset class was the personal angle attached to it. “I am relatively new in the field, but have several years of entrepreneurial experience. I wanted to be a part of other entrepreneurial setups and help them grow.”

Investing in the stock market is a pure-return experience. Investing in startups is like sowing oats, wild or otherwise! “Even if one out of ten does you proud, the success of that one will far compensate for the failure of the nine others,” says Saurabh Srivastava of Indian Angel Network (IAN).

Fernandes is amongst the growing populace of investors who are excited by the proposition of creating new life in the form of companies. Most of them choose to mentor the startups that they invest in. As they have been entrepreneurs themselves at some point in their lives, the investee startups get a good degree of rearing. Even without taking the personal angle into account though, startup investing proves to be a good option on the returns front.

Asset allocation
Keeping other asset classes aside, let’s zero in on that ubiquitous entity in your portfolio—stocks. As a stock investor, you can choose to be a value or a growth investor. You can invest in large-cap or small-cap firms if market cap is what appeals to you. If you choose to spread your tentacles and take advantage of markets globally, then you can head towards foreign or emerging markets. You have probably been doing all these things for a long time. Now, consider being part of an entity that perhaps a few years later may grow to become the next Infosys. You don’t need to be a promoter yourself to achieve that. Either become an angel investor or invest in an angel fund.

If you are new in the business of angel investing, you can start off by investing in angel funds that invest in early-stage startups in India and abroad. Out of your Rs 10 crore corpus, if your stock to startup ratio is, say, 60:40, you’ll be investing Rs 6 crore in the stock market and Rs 4 crore in startups. This ratio and the corresponding trade-off, if any, will be different for different investors depending on their risk-return appetite. “I keep some amount of money aside for the stock market and some for angel investment. There is rarely competition between the two”, says Sanjay Bhasin, an angel investor with the Indian Angel Network and the Head of GSM and WCDMA in Nokia Networks, Finland.

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written by funny fashion, May 31, 2010

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It Seems Risky
written by Asset Allocation, July 12, 2009

To me it seems risky, to invest in the asset class startups. Even one invests 40 percent on this class, if you do not have good reputation or even good one, there is always risk.

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Investment trust
written by vikassinghania, May 19, 2009

Traditional' investment trusts normally issue only one type of share (ordinary shares) and have a limited life. Split Capital Investment Trusts (Splits) have a more complicated structure. Splits issue different classes of share to give the investor a choice of shares to match their needs. Most Splits have a limited life determined at launch known as the wind-up date.
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