The first and foremost rule of investment and gaining high ROI is taking risks. The risk you can take is proportional to your potential profits. Investing in startups is one such high-risk investment option. However, the profits skyrocket when you invest in early-stage startups in India.
Early-stage investors can enjoy hefty profits in the long run and the credit to contribute to the growth of potential revolutionary startup idea innovation. In this blog, we will explore several benefits of early-stage startup investment. But first, let’s start by understanding the meaning of early-stage startups.
What are Early-stage Startups in India?
Early-stage startups are just starting their journey and need a structured business model. They are working on developing minimum-value products and focus on conducting market research to explore effective product-market fit for startup profitability and success.
Early-stage startup investment provides the essential capital for startups to lay the foundation of their businesses, focus on R&D, and gather factual data to raise funds in the future. Early-stage VC firms, angel investors, incubators, and crowdfunding are a few types of early-stage investors contributing to startup growth.
Let’s look at some benefits of early-stage funding for startups and investors.
Benefits of Investing in Startups at an Early Stage
Startup-stage investors are crucial for the startup ecosystem and the nation’s economy. Below are eight benefits both startups and investors enjoy!
1. Financial aid in the early stage
For early-stage startups, funding is the oxygen necessary for survival. During this stage, the focus is on converting the innovative idea into a functional startup business model through R&D.
The early-stage startup investment fast-tracks the process and helps the startup generate an MVP and conduct market research to target the right audience for success and hefty returns. It enables the startup to launch their product ASAP and make improvements based on performance and customer reviews.
2. Mentorship for startups and entrepreneurs
Everyone needs a helping hand in the starting stages, especially new entrepreneurs. The early-stage investors are often industry experts dedicated to helping innovative startups. Therefore, with financial aid, they also offer their expert insights to enhance startup performance, navigate startup roadblocks, and identify and adapt to market trends. Early-stage funding for startups also brings a helping hand of experienced investors to gain a competitive edge through R&D.
3. Expand business network
One of the most crucial benefits of investing in startups is that you can build your network through early-stage investors. You connect with diverse startup investors like early-stage venture capital firms, angel investors, incubators, and more. They help you connect with more industry people to build business relationships for startup growth. With networking, you can foster relationships with potential business partners, investors, and experts to help you navigate the bumpy road of a startup.
4. Lower initial valuation
Early-stage startups in India tend to have lower initial valuations due to a lack of a structured model, an MVP, or a product. Therefore, early-stage investors can provide the necessary investment and secure more equity shares. However, as the startup scales, the value of their share in the startup grows. This results in more returns and a higher value on their investment.
5. Potential for growth and higher ROI
Due to the lower valuation, early-stage investors can make hefty ROI if the startup kicks off. Their small investment can help them gain higher ROI once the startup succeeds and establishes a strong brand presence in the market. Therefore, early-stage venture capital firms often look for promising startups for hefty profits in the long run.
6. Tax benefits and incentives
India is among the fastest developing countries, with a GDP of $3.5 trillion. The startup ecosystem has been the major contributor to this tremendous growth. One notable support the government offers is tax relaxation and incentives like subsidies. They offer subsidies and tax reimbursement for investment for investing in startups in rural areas to promote the growth of society and create jobs for everyone.
7. Diversifying investment portfolio
A good investment portfolio includes a balance of risky and safe investments. The early-stage startup investment is the perfect high-risk and return investment option. Various early-stage VC firms focus on such investments to gain more profit over time. For angel investors, this early-stage startup investment helps them diversify the types of investment.
8. Supporting innovation at an early stage
Many startups focus on resolving real-world problems with innovative solutions. Therefore, you can become part of this transformation by investing in early-stage startups. You can contribute to the betterment of the world and help startups in the most crucial stage. Fintech, Health, and Edtech are a few industries benefiting the most from innovative startups. Therefore, you can bring a change by aiding early-stage startups with financial support and mentorship.
Where to Find Investors for Early-stage Startups in India?
Finding the right investors is hard enough. But, finding early-stage investors is a wild ride. However, there are a few ways to help you find the right investors for early-stage startup investment. One of the most trusted methods of finding early investors is through your network. With networking, you can build a repo and credibility to attract early-stage investors. The network also helps you find potential business partners for growth and expansion.
21BY72 is an angel network dedicated to connecting startups with investors. We have organized three grand and successful global startup summits, helping startups raise over $10 Million. Our Global Startup Summit attracts startups, investors, and industry experts with exciting panel discussions, pitching events, and startup exhibitions. Whether a startup or an early-stage investor, you can find global investors and the most promising startups here. Explore our past events on our website!
Conclusion
Early-stage startups in India are the backbone of the startup ecosystem. They have innovative solutions to real-world problems that can revolutionize the industry. However, they need more finance for robust R&D. The early-stage startups invest in such promising startups in hopes of making a profit when the startup grows and becomes scalable. Early-stage startup investment is lucrative due to lower valuation and the potential for a higher ROI. The credit of supporting innovation and providing mentorship to groundbreaking startups is an added benefit. If you are looking for such early-stage startup investment opportunities, you can attend our Global Startup Summit to gather
entrepreneurs, industry leaders, and investors from across the globe. Check out our website for the upcoming dates for our startup summit.
FAQ
1. What are the risks of early-stage startup investment?
Early-stage startup investment is the most risky because it requires more market research, an unstructured business model, and tough competition. The probability of the startup failing and succeeding is equal. Therefore, you must consider factors like the entrepreneur’s understanding of the market and the startup’s structure and potential.
2. What are the types of early-stage funding for startups?
There are several types of early-stage startup investment options, including angel investments, incubators, crowdfunding, government grants, and early-stage venture capital firms. Each has unique conditions, but the one that stands out the most is the equity shares the investors may demand.
3. What do early-stage VC firms look for in early-stage startup investment?
Early-stage VC firms focus on early-stage entrepreneurs and their teams, startups’ potential, market trends, and business models. They consider the functionality of the startup product and service and market validation to make the final decision.
