Confronted with a dearth of pure-play themes within the secondary markets, seasoned traders like Vijay Kedia, Mukul Mahavir Agrawal, and the Jhunjhunwalas have skilled their sights on the start-up world.
Illustration: Raj Verma
The subsequent time you take a look at the inventory market ticker and surprise which bull or bear is transferring the Avenue, know that fairly a number of big-time traders additionally hunt within the multiverse. They’re betting on the parallel world of yet-to-be-listed start-ups pushed by entrepreneurs with desires of adjusting the way in which we do issues, speaking of angels (traders) and combating demons (of damaging money flows).
A few of these market veterans have seen 100x returns, some the gut-wrenching thrill of shedding every part, and a few are in it additionally as a result of they will do all this whereas mentoring founders with an thought however no thought of operating a enterprise.
From legends such because the late Rakesh Jhunjhunwala to Vijay Kedia, Ashish Kacholia, Mukul Mahavir Agrawal, and Ashish Dhawan to Safir Anand and Ambareesh Baliga, all have invested within the start-up house. These huge weapons hunt for pure-play themes reminiscent of cybersecurity, 3D printing, fantasy video games, hi-tech, insurtech, or shared workplace areas, amongst others. All are exhausting to search out in secondary markets. The lure? A start-up provides traders an opportunity to experience the innovation wave and make mind-boggling returns if it clicks. After which debuts within the secondary market. Take this: the itemizing of India’s first pure-play cybersecurity agency, TAC Infosec, turned Vijay Kedia and his son Ankit’s angel funding of Rs 45 lakh (for a 20% stake) into greater than Rs 40 crore in somewhat over six years when the agency debuted on the bourses in April 2024.
“ We’ve got a confirmed franchise mannequin that helps in fast growth… It’s enticing to traders for its potential to rapidly multiply shops and enhance income potential ”
KABIR JEET SINGH
Co-founder & CEO
Burger Singh
A Dangerous Proposition
Vijay Kedia, a Mumbai-based investor whose listed holdings have been value Rs 1,650 crore as of Might 24, 2024, is thought for choosing high quality shares on inventory exchanges at an early stage. His start-up portfolio reveals he’s bullish on AI companies, tutoring providers, and producers of fibre 3D printers, amongst others. Tracxn, which tracks start-ups from seeds to unicorns, says Kedia held an 8.69% stake in Onward Help, an AI-powered platform for most cancers diagnostics. He additionally has a 7.75% stake in Fabheads Automation, a producer of fibre 3D printers, and a 5.49% stake in DheeYantra Analysis Labs, which gives conversational assistants that help Indian languages. DheeYantra posted a internet revenue of Rs 6.9 lakh in FY23, its first-ever, towards a lack of Rs 79.9 lakh in FY22. Onward Help posted a internet lack of Rs 1.06 crore, and Fabheads had a internet lack of Rs 6.11 crore in FY23.
However why spend money on start-ups when you possibly can play within the universe of listed companies? The problem and the journey, says Kedia, MD of Kedia Securities. “A person investor requires a small quantity to spend money on a start-up. If the enterprise turns into profitable, it might ship 100x or multi-fold form of returns. That’s the reason I spend money on start-ups,” he says. Monitoring and figuring out start-ups helps him be taught new issues. “However the threat is large. It’s a zero or multi-bagger recreation. Each firm appears good at first,” he says.
Kedia runs with a SMILE within the listed house and hunts with CAMP whereas on the lookout for good start-ups. SMILE is his acronym for Small in measurement, Medium in expertise, Massive in aspiration and Additional-large in market potential. For start-ups, CAMP is extra correct: Capabilities of a key particular person, Market alternative of the merchandise, and Product’s potential to disrupt the market.
Kedia’s start-up portfolio additionally confirmed that, in June 2021, he had invested `71.40 lakh in Upside AI, which sought to make use of machine studying to make funding choices. The fintech agency shut down in 2023. Later, Upside AI Co-founder Kanika Agarrwal defined in a thread on X in December why it failed: “We have been rising so rapidly that we didn’t see that there’s a ceiling on the place our merchandise or efforts would take us…. we may have executed higher.”
Kedia, who began his investing journey in 1989, believes that the probabilities of earning money as a person investor whereas investing in start-ups are very bleak. Nevertheless, he advises traders to spend money on start-ups via funds, as they’ve professionals who do the analysis earlier than investing.
“ [Vijay Kedia’s investment in TAC Infosec] not solely validates our mission and methods but in addition instils a deep sense of belief and credibility amongst different potential traders and companions ”
TRISHNEET ARORA
Founder & CEO
TAC Infosec
Jhunjhunwala’s restricted picks
Even the late Rakesh Jhunjhunwala, who was known as the Warren Buffett of India, caught the start-up investing bug. Jhunjhunwala started with a capital of Rs 5,000 in 1985; in the present day, his listed portfolio (collectively held together with his spouse Rekha) is value practically Rs 50,000 crore. This makes Rekha Jhunjhunwala India’s second greatest particular person investor after DMart Founder Radhakishan Damani whose portfolio is value greater than Rs 2 lakh crore. Rakesh Jhunjhunwala, a self-made dealer, investor and businessman, was often known as the ‘Large Bull’ of D-Avenue. Information accessible with Tracxn confirmed that he was additionally aggressive within the unlisted and start-up house as he was eyeing sectors reminiscent of media and leisure, aviation, in-house inside designing providers, and SaaS gamers, amongst others.
Nevertheless, the Jhunjhunwalas had very restricted funding in start-ups. Their first such was in low-cost airline Akasa Air. It was promoted by two aviation trade veterans and had the Jhunjhunwalas as the largest investor (38%). Jhunjhunwala’s threat was that he was investing in an airline when others have been damaging on the sector. Through the launch, Jhunjhunwala stated, “We’ve got a recreation plan. It’s higher to try to fail moderately than not strive in any respect.”
Madhusudan Kela, who holds listed shares value greater than Rs 2,000 crore, additionally holds a stake in Akasa Air (0.7%, value Rs 4.5 crore).
Jhunjhunwala and his brother Rajesh collectively held a 43.9% stake within the built-in omnichannel monetary providers platform airpay, which was based in 2012 and has raised $3.63 million to this point. Amongst his different investments, he acquired a 1.2% stake in Bengaluru-based RezNext in November 2014. RezNext is a SaaS or software program as a service platform for hoteliers and channel managers.
Vijay Kedia
MD
Kedia Securities
Jhunjhunwala, who handed away at age 62 on August 14, 2022, was very bullish on the India development story. Every week earlier than his dying, he advised an interviewer that India was coming into a golden interval and will develop at 10% a yr.
Stake hunt
The Kedias and the Jhuhjhunwalas aren’t the one distinguished market gamers who hunt for start-ups. Mukul Mahavir Agrawal, Chairman & Founding father of Param Capital, holds a listed portfolio of greater than Rs 5,000 crore. Based on Trendlyne information, he’s the newest star of the Indian inventory market, as the worth of his listed portfolio soared 1,417% because the Covid-19 lows of Rs 337.49 crore in March 2020. He’s additionally identified for choosing little-known and small-cap shares from bourses.
Agrawal holds round 3% stake in Ketto, a web-based crowdfunding platform for social causes. He additionally holds 6.7% in Credilio, a web-based market for private loans. On March 31, 2022, he invested Rs 5 crore for a 0.9% stake in Fantasy Akhada, a sports activities platform for fantasy video games. That funding is value Rs 8.8 crore, in accordance with Tracxn. Valuations of unlisted start-ups often change due to elements reminiscent of money flows, funding rounds, earnings, and dealing capital, amongst others.
“ Versatile workspaces provide a payas-you-go mannequin, permitting companies to handle prices extra effectively. This flexibility is especially enticing for start-ups ”
AMIT RAMANI
Founder & CEO
Awfis Area Options
In edtech, Agrawal holds a 3.15% stake in LogIQids value Rs 1.3 crore. He additionally holds a 1.3% stake in SpeEdLabs, a tech-enabled tutoring platform for aggressive exams. His SpeEdLabs stake is value Rs 2.1 crore at current, up 1.4 occasions towards the funding of Rs 1.5 crore.
“I should not have any fastened technique. I search for mature start-ups, and promoters ought to be fixing an issue via their start-up. General, the enterprise thought ought to be strong, and the start-up shouldn’t be based only for the sake of beginning a start-up,” says Agrawal.
Then there’s Noida-based particular person investor and lawyer Safir Anand, who has over 220,000 followers on X. As of March 31, 2024, Anand held somewhat over 1% stake in small-cap listed companies Poojawestern Metaliks and Shree Pacetronix. His start-up portfolio contains firms from fintech, semiconductors, and media and leisure. Based on Tracxn, he holds a 0.11% stake within the on-line interactive storytelling platform KahaniBox and 0.17% in AI-based digital trial options for magnificence manufacturers Orbo AI.
Earlier than investing, he appears at what downside the start-up needs to deal with. “I additionally zero in on elements reminiscent of the chance facet, how the promoters are in direction of the issue, humbleness and training of promoters. Promoters also needs to be hungry for development and have pores and skin within the recreation. I’m not a fan of claims that previously one of many promoters bought ‘XYZ’ start-up at a dream worth as there might not be a correlation of 1 success to a different,” Anand says.
The lure of start-ups
Why are ace market gamers investing in start-ups? One purpose is itemizing good points, just like the one made by the Kedias. Trishneet Arora, Founder and CEO of TAC Infosec, says Vijay Kedia’s resolution to take a position was pushed by his imaginative and prescient to “help and elevate progressive ventures that promise strong development and substantial affect”. In fact, getting a revered investor like Kedia on board was nice for TAC. “It not solely validates our mission and methods but in addition instils a deep sense of belief and credibility amongst different potential traders and companions,” he says.
Amit Ramani, Founder and CEO of Awfis Area Options, by which ace investor Ashish Kacholia holds a stake, says, “Conventional workplace setups contain substantial upfront prices and long-term leases, whereas versatile workspaces provide a pay-as-you-go mannequin, permitting companies to handle prices extra effectively.”
Safir Anand
Investor
Kacholia invested Rs 50 crore for a 5% stake in Awfis; when the co-working platform listed on the bourses on Might 30, his stake was value Rs 150 crore. Referred to as the Large Whale of the Indian inventory markets, Kacholia additionally owns stakes in start-ups in power, fintech, and shopper items, amongst different industries. On Might 24, his holdings in listed shares have been value practically Rs 3,100 crore.
Awfis reported a 103% YoY development in revenues to Rs 565.80 crore in FY23. Whereas its working revenue elevated by 95.67% YoY to Rs 176.1 crore, it reported a internet lack of Rs 46.60 crore in FY23 towards a internet lack of Rs 57.20 crore in FY22.
Based on Tracxn, Kacholia’s funding of Rs 16.9 crore for a 26.7% stake in Smartivity, a supplier of AR-based instructional toys and kits, has grown to Rs 26 crore. Kacholia additionally owns a 1.1% stake in Everest Fleet, an end-to-end administration answer for fleet taxi operators.
“ The insurtech house in India is booming. With low insurance coverage penetration and evolving shopper wants, there’s a huge alternative for gamers to supply tailormade merchandise for shoppers ”
ANIMESH DAS
CEO
ACKO
Kacholia owns 0.7% of SUN Mobility, which runs a community of swappable battery stations for electrical autos. Param Capital’s Agrawal additionally personal 0.7% of SUN Mobility.
Ace investor Akash Bhansali, whose funding in listed shares was greater than Rs 5,500 crore as of Might 24, 2024, holds 4.8% in Gurugram-based Monsoon Fintech, an AI-based different credit score scoring answer for lenders. Tracxn information reveals his unrealised return on a post-round cumulative funding of Rs 92.50 lakh within the start-up has grown fourfold to Rs 3.7 crore.
Then there’s Ashish Dhawan, who holds listed shares value practically Rs 3,650 crore as of Might 24 and has backed start-ups reminiscent of ACKO. Dhawan has a 1.4% stake within the multi-category digital insurance coverage and claims administration options agency. “The insurtech house in India is booming. With low insurance coverage penetration within the nation and evolving shopper wants, there’s a huge alternative for gamers to supply tailored merchandise,” says ACKO CEO Animesh Das.
Dhawan’s holding in Gurugram-based Burger Singh, a restaurant chain serving burgers, was 11.7% as of Might 24, 2024. The worth of his post-round cumulative funding in Burger Singh has grown from Rs 16.90 crore to Rs 48.60 crore (unrealised return) and Rs 5.30 crore (cumulative realised return).
How did a burger chain get greater than 60 angel traders? “The constructive of Burger Singh is its confirmed franchise mannequin, which helps us broaden quickly,” says Co-founder & CEO Kabir Jeet Singh.
Dhawan additionally owns a 0.49% stake in Slurrp Farm, an internet-first model providing millet-based meals for teenagers and toddlers. Sadhan, a tech-enabled logistics service supplier, can be in his start-up portfolio. With a stake of 9.4%, his Rs 10-crore funding in Sadhan was value practically Rs 75 crore, Tracxn information reveals. Likewise, the identify of Sunil Singhania, Founding father of Abakkus Asset Supervisor LLP, additionally appeared amongst traders in Bengaluru-based fintech start-up BankSathi, which raised $4 million in a brand new spherical from a few traders in January 2023. Singhania declined to discuss the start-up house and his investments.
Unbiased market analyst Ambareesh Baliga, who has practically 4 many years of market expertise and has labored with monetary companies reminiscent of Karvy and Edelweiss, says he has invested in start-ups reminiscent of Primary House Loans, a web-based platform for house loans; Nova Nova, which gives wholesome snacks; and AdOnMo, which gives digital screen-based advert options. “Tyke, Castler, Celcius, Let’s Strive, Zypp Electrical, Autocracy, ALYF (ShareNest), BluSmart and Ease My Commerce (StockDaddy) are amongst different start-ups the place I’m invested,” he says.
Ambareesh Baliga
Unbiased Market Analyst and Investor
Baliga invests in start-ups at an early stage, which is totally opposite to his funding course of within the secondary market. “My funding choices at this stage are pushed purely by a number of key metrics—the founders, their background, readability of what they need the start-up to be and the way they will take it there. The product in the present day and the potential for it to vary/pivot primarily based on market elements and scaleability within the subsequent two to a few years. It’s necessary for the founders to be passionate in regards to the enterprise; nevertheless, simply being passionate with out a clear scheme to implement the targets could be disastrous,” he says.
Why are huge traders looking for start-ups when there are millions of listed companies? It’s not simply in regards to the returns, says Rishiraj Maheshwari, Founder and CEO of RISCH Wealth & RISCH Household Workplace. “Ace traders from fairness markets typically have important expertise in each entrepreneurship and investing,” says Maheshwari. “Many have constructed profitable companies themselves and have a eager eye for promising start-ups. Their expertise permits them to evaluate the potential of early-stage firms, determine dangers, and supply useful mentorship to the founders they spend money on. Moreover, their networks and connections could be invaluable assets for the start-ups they help.”
Dangers Concerned
What in regards to the dangers in betting on a start-up that would flop? Safir Anand says promoter mindset is the primary threat. “Many promoters are initially focussed on work and enterprise, however as they elevate rounds of cash, hubris units in. They begin daydreaming in regards to the valuations surging and themselves as the following millionaires or billionaires and focussing much less on the enterprise.”
Anand says there are conflicts of curiosity between enterprise capitalists (VCs) and companies. A VC often needs to exit inside a hard and fast interval and is guided by IRR or the interior price of return. “The VC generally pushes companies to develop even when development is a damaging to money flows and laden with dangers.”
Prateek Jain, Affiliate Director-Begin-up and Alliances, Alliance of Digital India Basis (ADIF), an Indian coverage suppose tank, says the primary threat is the restoration of the investments. The beginning-up may very well be blindsided by market forces, adjustments in shopper behaviour or authorities insurance policies regardless of the due diligence put in by the investor or VC.
“Begin-ups are inherently dangerous on account of their unsure future and the potential for failure. Nevertheless, profitable investments can yield substantial rewards, together with monetary good points and the satisfaction of backing progressive concepts. Diversify a portfolio, conduct thorough analysis, and be ready for the long-term dedication required in start-up investing,” says Maheshwari.
Citing his funding journey, he says it may very well be a prolonged voyage, with many start-ups bearing fruit however no jackpots, “My enterprise into start-up investing has been an intriguing and enlightening private journey. Initially pushed by ardour, I supported numerous concepts and invested my very own funds. Nevertheless, the monetary success I anticipated didn’t materialise,” he says.
Baliga says the largest threat is the start-up going belly-up. Different dangers embrace liquidity since you can not exit if you wish to. Even for start-ups which can be doing decently nicely, an unscheduled exit by an investor may very well be at a reduction.
Avoid entrepreneurs who should not have a good thought of the issues they’re attempting to resolve, the veterans say. “Everyone seems to be speeding to make apps and web sites with fancy names with out even understanding the authorized or compliance and different necessary issues,” says Jain. So, many traders have a military of specialists able to do the due diligence, he says.
Is it smart to spend money on loss-making start-ups? Baliga says fairly a number of of the start-ups he invested in are loss-making, however one ought to be capable of see constructive money flows down the road. The likelihood of going unsuitable is increased than within the secondary market, however traders can also find yourself with multibaggers, he says.
“Begin-up is a high-risk and high-reward house. I’d first consider dangers from the attitude of a co-founder/promoter,” says Soumya Malani, a Kolkata-based investor in small caps who can be an investor and co-founder of start-ups reminiscent of QSR Chaigram, pet meals agency Filomilo, and snacks and drinks agency TABP Snacks and Drinks.
Malani says it’s important for all co-founders to be on the identical web page. “We regularly see that after a degree, there are variations of opinion amongst co-founders…. This may result in a variety of friction and may negatively have an effect on the start-up,” he says.
A very powerful aspect of any start-up investing is to wager on the correct promoter. “The reward within the start-up universe may very well be astronomical for those who get it proper,” he says.
So, what’s the guidelines for an investor looking for start-ups? Prioritise due diligence, be a mentor and search for sustainable enterprise fashions.
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