How can our start-ups have funds on tap and avoid the TRAP of P/E and V/C investors?

6^th April 2024

 

How can our start-ups have funds on tap and avoid the TRAP of P/E and V/C investors?

 

Dear Fellow Indians,

 

Namaste! India is in a peculiar situation – we are not able to give the job to the newly educated or who are ready to work fully. We are also not able to provide the capital to the new start-ups guys who want to try on their passion or ideas and make a big impact in their life. Now, when the start-ups do not get the capital – the job generation that may come from them will not come for sure. 

 

My recent observation with a start-up: - 

 

I know a person who has done the first stage funding for his start-ups from his and his family resources. Now they are doing well. Business is also doing good. They are looking for some VC or PE to invest in their venture and the amount is also peanuts. The amount is not in crores. In the name of investment they are getting high interest asking for opportunities from the so called VC and PE communities. In other words – they are getting money on interest !! They have cost money to pay from day one. 

 

In such a scenario – it’s difficult to NURTURE the start-ups and take the economy to the fastest growth place. I have some idea. If MODI 3.0 takes note of the same – their GDP targets will be easy to achieve. 

 

What is my Suggestion?

 

Let us go back to DHIRUBHAI. When he wanted to expand his business way back in 1977 – he approached the public for just Rs.10. He gave the share of Rs.10 to the investor with a promise to multiply the same. He did it and those who invested at that time - made tons of money over the years. 

 

How to apply this model now?

 

1.   We can ask investors to invest just Rs.10000 per company. 

 

Today tons of young guys are in the market to trade in Futures and Options. Their parents are giving them Rs.1 lakh to Rs.2 lakhs and all they do is they trade and lose. 95% of the traders are losing in Futures and Options as per SEBI report in the recent past. 

 

2.   As such you are losing your money. Why don’t you give this money for NATION building? 

 

We don’t have compulsory military training for the guys between 18-21 like many other countries of the world. So, we can make this mandatory for those who are opening accounts and doing Future and Options – must first invest in the start-ups. If you want to trade in Futures and Options – you must invest Rs.1 lakh into start-ups. 

If you find MANDATORY too harsh – let us motivate them to invest in the 10 or 20 start-ups. 

 

3.   Now 90% of the start-ups will also not see success!! 

 

The above is also true. But there is a chance to make big money in spite of losing 90% of the money. Say a guy invests Rs.10000 per start-ups and he invests in just 10 start-ups. 9 start-ups close the shops and 1 clicks. But the one which clicks – will multiply his money at least 100 times over the 3-5 years’ time. So, in spite of losing 90% of the funds – he has a high probability to multiply his initial capital of Rs.1 lakh to Rs.10 lakhs. 

         

        This is better than losing 100% in Futures and Options. 

 

4.   Assured allotment in the Equity: - 

 

Today we see IPOs are getting over-subscribed multiple times. It means not many are able to get the shares. But with my proposal – you are the original investor and getting shares at Rs.10. So, when the IPO comes – your money has already multiplied 10-50-100 times. Now, you can sell it or just hold it for further growth. 

 

5.   Life time TAX FREE income from this investments: - 

 

Today there are tons of Government sponsored schemes to promote start-ups. The government is not having enough resources to support all. But if all Indians just invest Rs.10000 per start-ups they can change the world. 

 

The simple way to motivate the investors to invest in these start-ups is a lifetime of  capital gains tax free from these start-ups. Say you invested Rs.1 lakhs and it became Rs.10 lakhs – you will not be required to pay the tax on those Rs. 9 lakhs.

 

The investment of Rs.1 lakh should be deducted from the income like Sec 80C. So, there are twin benefits. While investing income tax benefits and while selling capital gains tax benefits. 

 

6.   Start-up funding institute of India: - 

 

We have seen ICICI and IDBI early in the 1980s and they were doing kind of start-up funding without using fancy vocabulary of VCs and PEs.

 

We can have a SEMI SEBI kind of institute. Here the start-ups who want funding are required to present his project report and once the expert panel is convinced by the rationale of the project – the start-ups can be placed for normal investors investments. The lot size is Rs.10000 per investor and the investor is NOT ALLOWED to invest in multiple lots. Investment is first in - first out basis. Oversubscription, if any, should not be kept with the company. But the investors should be kept in reserve for the 2^ndround funding or next round of funding. 

 

So, if the start-ups need further funding – it has ready made investors. Just approach them and get the money. No need to wait. 

 

This institute will be there to monitor the progress and fund usage of the start-ups. When they are satisfied – then only the second round of funding should be allowed. All the details of the start-up financials can be kept online on this institute website for tracking by the investors. 

 

Once the start-ups are established then the case is transferred to SEBI for IPO. In this way – the SEBI has all the details from day one. So, the IPO permissions are granted fast. 

 

How to CHANGE India fast?

 

Today the main challenge for the guy who wants to start his own venture is that he is not getting funds. If at all he is getting funds – he is getting at very high interest rates. There are very few lucky people who got the funding from the likes of Sir Ratan Tata. 

 

If we follow the above way – we will have funds on tap for  more and more start-ups in all the areas. This means more and more employment for the deserving guys. The people will start a business and they will only provide employment to fellow Indians. This will solve the major problem of unemployment where the government has failed badly in the last 10 years.

  

What has happened in the last 10 years? 

 

We have done tons of investments in infrastructures. The major money has gone towards ROAD / TRAIN and AIRPORTS / PORTS connectivity. While this is necessary and backbone for the progress – money is taken away from the people. So, there is a road and people may not be using it optimally because the economy has not progressed in those areas. 

 

1.   Demonetisation 1 and 2 has taken away the money from the people.  

2.   With competitions from the BIG corporates – small and medium business owners are not able to compete. I know many small businessmen who are crying day in and day out for degrowth in their business. 

3.   Newly educated guys are not getting placements or the job they want to do. 

4.   Heavy indirect taxes due to GST ( including food items) has added salt to the injury. 

5.   To escape the blame of failure they are providing FREE FOOD to the 80 crore people. 

6.   This is a situation after 8.4% GDP growth!! 

 

The end results – lack of demand of the middle level and lower levels items. Since the top guys are making tons of money – there is a heavy demand for LUXURY items. I have been told that there is a premium if you want to buy a ROLEX watch. ( I have not checked this. You may check it). So, luxury demand is there like we have never seen before. But the overall economy is down. 

 

The above suggestion can help to motivate the dreamers to try his business ideas. If at all 1 in 10 start-up clicks – the economy will be better performing in the coming 5 years. 

 

We call this a FINE ART OF DESTINY MANAGEMENT.  Wish MODI 3.0 takes this idea seriously and fine tune it as per the legal and other requirements and pushes it in a big way in coming BUDGET. You need to make this the best forward.  

 

Think beyond the obvious. 

 

Follow me on Twitter @hiteshmparikh Or on Whatsapp - +91-9869425399.

 

Learn a Lesson. Live with Passion & Invest with Reason.

 

Hitesh Parikh.