Top Ten Tips for Attracting Foreign Investments for Indian Start-Ups: Lawyers Advice
A new trend in the form of startups has seen a steady growth in India in the past one decade. India ranks as the 3rd largest startup ecosystem in the world, with 1,300 new startups emerging in the year 2019. It is responsible for creating 60,000 direct jobs and around 1.5 Lakhs indirect jobs.
A startup is a new venture initiated through an entrepreneur which is based around an idea or a problem faced by people, which has a great market potential. The biggest issue faced by such an entrepreneur is to acquire the required funding to implement the idea and initiate the actual business.
Top ten tips for attracting Foreign Investments for Indian Start-Ups are:
SHOW CLEAR PROOF OF POTENTIAL SUCCESS: Before a person decides to invest his hard earned money in a startup, he has to be fully satisfied that the given idea has a market potential. In case the entrepreneur fails to convince the investor that his idea has potential, no investor would be ready to invest his money.
BUILD TRUST: In order to persuade an investor into investing his money in your startup, it is crucial to establish a relationship of trust which can be ensured by disclosing all the relevant information and not withholding anything that might affect the decision of the investor.
IDEA SHOULD BE UNIQUE: For a startup to grow and prosper, it is very important for the idea to be new and unique in the market. Being the first one in the market gives a huge strategical as well as economic benefit making the investor more interested. Entering into a market with competition already existing makes it more difficult to sustain the business.
DO NOT SEEK MORE MONEY THAN REQUIRED: Entrepreneurs in India have a habit of over valuating their business and seeking more funds than actually required to run the business. This is also done in order to show positive cash flows. If the entrepreneur is unable to justify the amount of money he is seeking from the investor, the investor usually losses interest in the business.
MAKE A PROPER MARKETING STRATEGY: A great marketing strategy is a key to successful business. Without a set marketing strategy, the business won’t be able to boost sales or gain any competitive advantage. Therefore, it is a must to formulate a strong marketing strategy before one goes out asking for funds from the investors.
CHOOSE THE RIGHT INVESTOR: Before approaching an investor, it is important for the entrepreneur to study the portfolio of the investor and see his area of interest and expertise. Therefore, the entrepreneur shall approach an investor who is interested in the field of business. If the field does not interest the investor, it is highly unlikely that he would invest in your business.
BE OPEN TO ADVISE OR CRITICISM: An investor might have more expertise and experience in your field of business and hence, it becomes necessary for the entrepreneur to be open to comments and criticism. Listening to the advice might not only help the entrepreneur to improve the business but good listening also helps to create a sense of trust between people.
DO NOT SELL AND GO: Entrepreneurs with a business idea usually want to sell out their business at an early stage and leave it. They are not ready to take the risk of implementing their own idea. In such a case the investor loses faith in the business, if the founder himself wants to sell out the whole business and leave.
CONCRETE DOCUMENTATION AND PAPERWORK: The Indian entrepreneur should ensure that all the compliances, documents, licenses, permits, registrations and any other paperwork is well completed. The same can be done with the help of conducting elementary legal audit and finance audit.
EXECUTE FULL PROOF INVESTMENT TERM SHEET: The Indian entrepreneur should ensure that all the clauses of the “Investment Term Sheet” which includes all the terms and conditions of the investment are properly drafted and are transparent while leaving enough scope for the Indian entrepreneur to run the business without any unwarranted interference.
In India, in these difficult time of corona virus have been able to raise funds due to the uniqueness if ideas and a great market potential. Nyka a Mumbai based online beauty products retailer has raised Rs. 66 Crores in May, 2020, whereas SARVA a yoga and wellness startup raised an undisclosed amount of funding from US-based VC Fund Mantra Capital. Further, Pune based fitness app received $2 million funding in April from Surge.
Therefore, startups in India have been able to raise funds by following and keeping in mind a few points before presenting their business idea to the investors. Funding plays a key role in the success of a startup and if the funding is received easily at the initial stage, it acts as a big boost for the entrepreneur and the business.
Authored By: Adv. Anant Sharma & Ananya Jain