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Has anyone ever invested in a startup? In India?


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Family friend from India who is a financial advisor sent me a presentation for a EV company. I know nothing of the culture, climate, environment there. Further, I've never put money in a startups before. The company plans on launching a product latter half of this year and thus is gathering funding for manufacturing. Plan is to launch an EV Motorcycle. Its the biggest two wheeler market in the world, but EV motorbike sales in the country are close to zero now, therefore it is somewhat intriguing.

That said, a company that doesn't sell products yet is nearly impossible to assess. How would you approach? Study the founder? Look for share alignment? Try to make sure it's not a fraud?

Obviously the industry is in a bit of a mania right now which I am taking into account. Likely will not invest, nonetheless I want to take this as a chance to learn about investing in the country.

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Not India specific, but generally for a VC investment, atleast one of the investors in the round needs to lead the series (determine pricing) and go through the basic diligence steps (verify real prototypes, right team etc etc). If they have a lead investor lined up and they are looking more money to finish up the raise, I'd say it's worthwhile to consider. If it's pre-product, your making a big bet into the management team and the story, so I'd focus there.

If you're a lone angel / seed investor, there's no lead investor, and you're too far to do the diligence ... that would be an easy pass in my book.

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Not that I am extremely active in India, but I have done a few small start up/VC investments there and I would ask the following questions:

1) as you alluded to, industry is in a bit of a mania so prices will be extremely high, but also the VC/angel scene in India is a bit of a mania as well. The money that is available to invest is exponentially larger than 3-5 years ago. More and more founders are actually asking people what the "x" factor they can bring with their money is. And in such a hot industry, I would be asking "Why me?". If the idea is good, there should be a line around the block to invest in it.

2) In terms of culture - I would ask a couple of things - where is the business located and who are the advisors (official and unofficial) that the business is using to help them grow. I have invested mainly in the Bangalore and Mumbai/Pune ecosystems. I can tell you from experience, the difference between those two ecosystems is pronounced and from my discussions with friends and other investors, the differences in other parts of India are even more pronounced. I tend to put a large value on this variable due to previous experiences.

3) In terms of fraud/checking if the company is what it says it is - I would approach it in a couple of different ways. If it is a very small company, chances are it will have a link to an incubator/accelerator or angel network if only to help it raise capital. Most of the companies I invested in were from these ecosystems, which gave me the ability to speak to other people who had previously invested/looked at the business. If the company is a larger company, then it probably has raised money from somewhere, I would look for someone on the cap-table to speak to. I would specifically look for smaller/non-traditional VCs where I could potentially speak to the person leading the investment (in the larger firms, they tend to be more guarded about any investment knowledge they garner).

In my opinion the market in India has gotten too hot over the past two years (though I know of people who have been saying the same thing about the Valley for several years as well), so I would tread with caution. I would also ask how/when you will get the money back? Liquidity events in India have tended to be buy-outs by larger companies rather than large IPOs, which puts in additional cyclicality into your exit strategy and may impact your timeline. Finally I would ask whether the founder is actually capable of making this a success, because in India IP rights are not as strong as they are in the West, and if this is successful, you should bet that one or more of the motorcycle manufacturers are going to make a similar product and economies of scale theory suggests it will be cheaper. Does the person you are investing with have the necessary foresight/vision to outcompete on a very uneven playing field. What I have found in India is that its often the service start-ups that are more competitive than the manufacturing ones simply because of the speed to market/distribution issues. That being said, you only need to be right once so this may be that case.

Best of luck either way.

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Do they have an MVP? Ballpark US numbers I could probably find a used ICE motorcycle for $2k and add $5k worth of off the shelf battery and motor components to configure some kind of working EV bike. I'd be skeptical of a team that hasn't gotten that far at least, even if their final product ends up differing significantly.

Early stage I think you need to look at the team and their experience in the field, and what they've done on their own so far. Is this a group that's been building EV motorcycles in their garage for years and now wants $ to expand or are they businesspeople who see an opportunity and want to set up a factory with little specific industry experience?

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winjitsu, ANP, Pelagic, thank you all for your generous responses. I have decided to pass as this is definitely in the way too hard pile for me. But I appreciate the thought processes laid out here and it'll help me look at another opportunity if I ever get it. I had to look up what an MVP was. Do they have one? No clue. And I don't know any angel investor either. The founders do have experience in starting businesses but not specifically in this industry.

And ultimately, I do agree it's bizarre they are asking for a relatively small minimum amount from people in the U.S. (less than $50k commitment). As ANP pointed out, given the mania and the amount of money floating around, why would they need to ask for small sums from low net worth individuals? 

Let's see what happens. Watch this become the next Tesla :P.

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