Mutual Funds That Invest In Startups

Why To Invest In Startups

Investing in startups is not the safest of investments. It can be very risky. In fact, many startups fail. As such, investing in startups likely is not the way to provide yourself with a retirementnest egg or to make money for purchases like a house or a new car.

Instead, startup investing is for people who want to take a chance on a company they really believe in. It is for investors who believe in the people behind a company and in the companys mission. They want to help the company achieve it and get some returns in the process.

If you want your investments to be more than just a way for you to make your money work for you, startup investing may be a good choice. If not, there are other options, like investing in stocks or mutual funds, that may be a better fit.

Investing In Startups Founded By Women And Multicultural Entrepreneurs

To help close the funding gap for multicultural and women-owned businesses,1 Morgan Stanley Investment Management and the firms Multicultural Client Strategy Group are launching a new fund to invest in startups led by diverse entrepreneurs.

The Next Level Fund will invest primarily in early-stage technology and technology-enabled companies that have women and/or multicultural members among their founding teams. This latest move by Morgan Stanley highlights opportunities with underrepresented business leaders, often targeting underserved markets and communities, and aims to help meet growing investor demand for impactful market solutions to address social justice, gender equality and racial equity.

The fund is part of the Private Credit and Equity strategy within the Investment Management division, which oversees more than $1.4 trillion of assets.2 It will also be backed by three key corporate partners: Hearst, Microsoft and Walmart.

We are pleased to expand our impact-oriented client offerings with the addition of Next Level, and we are proud to partner with like-minded companies that share our commitment to delivering positive social impact through compelling investment opportunities, says David N. Miller, Head of Private Credit and Equity at Morgan Stanley Investment Management. Our differentiated approach can help to increase access to capital for women and multicultural businesses in our target sectors.

This is a Marketing Communication.

Startup Funding Options In India

08 min read.

Planning to launch your own start-up? Now is the time. India is in its best ever phase of startup ecosystem and the economic environment is favoring the aspiring minds. However, careful planning and futuristic approach are imperative to ensure your startup dont end like the 94% that shut down their shutters within the first year of operation.

Funding is an extremely significant aspect in line with meeting the vision of a business. Funding and fundraising, both are fundamental modern business scenarios that support the growth of a startup. The first round of funding, popularly known as seed funding forms the basis of fundraising. It is followed by series A, B and C rounds of funding. While the seed funding typically refers to the basic, initial round of funding, series A, B, and C differ in the business maturity and the type of investors involved. The series funding helps in the evolvement of a startup to a full-fledged organization by helping it with calculated funds at crucial steps.

Here are a few successful startup funding options in India that will help you support your business with the indispensable finance requirements.

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Is A Mutual Fund An Alternative Investment

The simple answer is yes. Mutual funds are a type of alternative investment. Generally speaking, entrepreneurs, young professionals and other newcomers thinking about investing will have some familiarity with the stock market. You buy shares in a company and stand to profit when the price of those shares goes up. Its fairly easy to understand, and there are plenty of trading strategies out there to help you reach your goals with a mutual fund.

Its important to understand, however, that you assume a high degree of risk if you invest all your money in a single asset class. Startup entrepreneurs know about risk. You can buy shares in several different stocks, sure, but that doesnt truly diversify your portfolio. Youll still be at the mercy of stock market trends, and you may lose your entire portfolio in an especially bad market. To truly diversify your investment portfolio, youll need to invest in different types of assets across different industries. This is where alternative investment funds come in. Here are just a few examples.

No 6 Papa Johns Central Europe

Who doesnt love pizza? And Papa Johns stuffed pizza appeals to a unique niche. One between deep dish lovers and thin crust connoisseurs. Papa Johns is currently raising funds to create shops in Russia, Poland and Germany.

WeFunder is a crowdfunding site, where this project lists. And theyve almost met their initial capital goal of about $1 million. Im not sure where theyll be listing after they meet their goal. But, you may be able to continue investing after its met. With a calculated average annual growth rate of over 30%, its easy to see why this is one of the best startups to invest in.

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Features Of Venture Capital Funds

• The main focus of VCFs is on early-stage investment but sometimes, it can also involve expansion-stage financing.
• Often, equity stakes of the enterprises or companies that are funded by the VCFs are purchased by the VCFs.
• Along with the capital, VCFs also bring with them the knowledge and experts of the investors which will help the company make further advancements.
• Sometimes the VCFs also help in developing new products/services and acquire latest technologies that will help the company to improve efficiency.
• The biggest advantage that VCFs offer is the networking opportunities. With influential and wealthy investors promoting the company, it will in no time, achieve stellar growth.
• VCFs hold the authority to influence the decisions of the enterprises they are investing in.
• To mitigate the risks involved in funding new projects, VCFs invest in a variety of young startups with a belief that at least one firm will achieve massive growth and reward them with a large payout.

Pros And Cons Of Vcfs

Pros

• No obligations for repayment

One of the primary advantages of venture capital funds is that the company does have to repay the investment sum.

Even if the company fails, entrepreneurs are not in any way obligated to repay the invested fund, which is usually severely problematic in case of bank loans.

• Beneficial for creating networks and connections

Venture capital firms have a widespread network, which can help a start-up get the much-needed marketing and promotion that can eventually help to establish itself.

• Paves the way for expansion

VCFs can help a company to expand quickly and exponentially. This may not be the case in any other type of funding.

• Offers crucial business expertise

Not only investment but VCFs bring years of expertise to the table. This proves crucial in human resource management, financial management, and business decisions, which young entrepreneurs may lack.

Cons

• Securing funding can take a long time

Venture capital firms have to assess whether investing in a company will be feasible and can help to generate favourable returns. This can take a prolonged time, which can delay funding.

• Forfeiture of complete control and ownership

Can be challenging to secure

Due to the ever-growing number of start-ups, securing a VCF may be challenging.

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Reasons To Invest In Open

A mutual fund is a separate legal entity which collects savings from small individual investors and institutions in exchange for partial ownership in that particular fund. Mutual funds allow individuals and institutions a way to get their wealth professionally managed by licensed asset management companies. They are extremely popular globally due to various benefits including tax rebates, professional management, a secure trust-like structure that provides protection, and exposure to a higher return asset class such as equities. In India, the size of the mutual fund industry has reached US$349bn as of February 2019, indicating its wide popularity with the masses.

For Bangladesh, mutual funds have numerous unique benefits which are largely unknown to people. We have listed 6 such benefits below:

Benefits Of Venture Capital

• Business expertise – Venture capitalists come with valuable expertise, advice and industry connections. They are expert professionals who have deep knowledge of specific market standards and can keep your business from experiencing many downsides that are usually associated with startups.

• Additional resources and connections – Along with monetary aid, VCs can act as HR consultants for the startup. They are specialists in hiring the best staff for your business. This helps in avoiding the hiring of the wrong person. It also offers a number of other such services such as mentoring, alliances and skill training.

• Business expansion – Venture capital provides large funding that a startup requires to expand its business. This form of investment is not possible through bank loans or other methods.

• Better Management – Since venture capitalists hold a percentage of equity in the business, they have a say in the management of the business. So, if you are not good at managing the business, the VCs can offer great assistance.

• Risk Aversion – For a promoter or founder of a startup, there is no obligation to pay back the seed funding in comparison to a bank loan where it is mandatory to repay. The VCs take the investment risk because they believe in the companys future success.

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Why You Might Not Want To Invest In Startups

Startup investing is not for everyone, least of all investors who want low risk and reliable income.

• Startups are super risky. About 90% of all startups fail, due to a lack of product-market fit, marketing problems, team problems or other issues. Theres possibility for total loss, Schryver says. In general, startups are only a good investment if youre prepared to lose 100% of what youre staking. The vast majority of your investing dollars should ideally be in index funds and exchange-traded funds , or even just individual stocks.
• Startups are illiquid investments. If you bought a stock today and changed your mind tomorrow about your choice, you could easily sell it. Startups, on the other hand, are highly illiquid. When you invest in a startup, you should expect that your money will be tied up for at least three to five years, if not more. Although you can have the opportunity to liquidate through secondaries, its not a guarantee, and your investment will likely take years to mature and materialize, says Ammar Amdani, a partner at early stage venture capital firm Adapt Ventures.
• It takes time to see results. Even if a startup succeeds, it still could take years before theres a result from your investment. You have to be patient and have holding power in order to give your portfolio companies time to grow, Amdani says.

Functions Of Venture Capital

In the past five years, venture capital has played a critical role in sparking the startup revolution in India. They have successfully boosted the Indian economy by creating a new paradigm of disruptive economic growth. Many startups have become unicorns, rivaling the best of India Inc, simply because of venture capital funds.

Listed below are the various functions performed by venture capital funds.

• Through VCFs, many startups and small businesses have finance and skills to develop their product even at the pre-start stage. The primary focus here is to provide resources for overall technological innovation.

• VCF is managed by a group of experienced professionals who help the startup in developing a business plan. The business plan focuses upon market opportunity, the product, the development and financial needs.

• Apart from developing a business plan and providing resources to do the same, venture capitalists also evaluate the merits/demerits of the technological innovation. This allows for better ways to meet the business objectives and efficient management of the technological innovation.

• Venture capitalist also have a large network of other ventures across different industry. This is essential for a small business when it comes to professional networking.

• Apart from providing financial aid, Venture capitalists are actively involved in supplying a broad spectrum of specialist services – technical, commercial, managerial, financial and entrepreneurial.

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Venture Firm Electric Capital Raises $1 Billion To Invest In Crypto Startups

Curtis Spencer and Avichal Garg formed Electric Capital in 2018 and say they now manage more than $2 billion in assets.

Electric Capital

Following a year when startups raised record amounts of venture funding and cryptocurrency prices hit historical highs, Palo Alto-based Electric Capital has raised $1 billion to place bets on crypto startups. That total includes a $400 million fund closed last year to make equity and crypto token investments, plus a $600 million fund closed last month to make token-only purchases. Prior to these, Electric had raised just $125 million across its first two funds.

Electric was founded by entrepreneur Avichal Garg, 39, and software engineer Curtis Spencer, 40. In 2001, while he was still in high school, Garg began his tech career by cofounding an education technology startup. He went on to major in computer science at Stanford and later worked as a product manager at Google. Then he and Spencer cofounded Spool, a bookmarking startup that let consumers save articles and videos on their phones. Facebook bought Spool in a small acquisition in 2012, and Garg and Spencer stayed at the social media giant for several years before starting Electric Capital in 2018.

Sutter Rock Capital/suro Capital

• 1-Year Trailing Total Return on Equity: 64.23%
• Expense Ratio: n/a
• 3-Month Average Daily Volume: 368,100
• Assets Under Management: $425.8 million
• Inception Date: April 28, 2011
• Issuer: n/a

Formerly known as GSV Capital, Sutter Rock Capital is not technically an ETF: It’s actually the stock of a publicly traded investment fund that seeks to invest in high-growth, venture capital-backed private companies. However, it provides the same function as an ETF, giving investors low-cost, diversified exposure to innovative, fast-growing young firms.

Sutter Rock’s portfolio contains around 39 companies. Its top five holdings account for approximately 54% of the total portfolio. These major holdings include Course Hero, Coursera, Forge Global, Nextdoor, and Blink Health. All of these companies have demonstrated strong growth in terms of users or revenue, and their IPOs are highly anticipated. An investor who expects continued inflation in private markets relative to public markets could play this theme by purchasing SuRo.

Fitting as a stock that invests in early-stage startups, SuRo has been quite volatile. The stock made its debut on April 28, 2011, at $15.00. At this time, it became a hot property, as it held Facebook and Twitter shares, allowing investors to gain exposure before their IPOs. However, once these companies debuted, demand cooled, and the stock tumbledto as low as $4 in 2017. Since then, it has slowly recovered to close at $12 as of December 2021.

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How Equity Mutual Fund Investors Can Use Ukraine Selloff To Their Advantage

In the wake of Russia-Ukraine crisis, global equity markets under heavy selloff stress. However, the recent selloff is seen as an opportunity by positional investors and various mutual fund houses as the equity market is providing an opportunity to enter at discounted levels. ICICI Prudential fund managers believe that both equity market and equity mutual funds are expected to give stellar return in long-term. They believe that current Russia-Ukraine war has provided an opportunity to long-term mutual fund investors as markets will rebound strongly post-ceasefire in Russia-Ukraine war.

In an interaction with Livemint, Chintan Haria, Head Product & Strategy, ICICI Prudential Mutual Fund further explained why he thinks long-term equity exposure is better than mid or small term.

Edited excerpts:

FIIs positional holding in Nifty 500 has come below 2012 levels. Is it opportune for lump sum equity mutual fund investment?

Also read:Top fund manager on what MF investors should do amid Ukraine selloff

Despite equity valuation correcting from record highs, it is not as cheap as it was during March 2020. Hence we believe the optimal approach is to stagger ones investment through SIPS or investing lump sum in balanced advantage and multi-asset strategies.

In the wake of Russia-Ukraine war, is it opportune to enhance large-cap equity exposure?

What is your suggestion to a fresh equity mutual fund investor in this geopolitics-hit equity market?

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How A Venture Capital Fund Operates:

Depending on the maturity of the business when the investment is done, venture capital investments can be seen as early-stage capital, seed capital or expansion-stage financing. However, the investment stage does not affect how venture capital funds operates.

To begin with, before making any investments, venture capital funds , has to raise money. Potential investors are given a prospectus of the fund after which they commit money to. Once a commitment is made, the fund’s operators call all the potential investors and finalize individual investment amounts.

After that, private equity investments that have the potential of generating positive returns for its investors are sought out by the venture capital fund. This process involves the fund’s manager/ managers reviewing business plans in hundreds, searching for potentially high-growth companies. Investment decisions are made by the fund managers and are decided according to the prospectus and the investors expectations. An annual management fee of around 2% will be charged by the fund once an investment is made.

When a portfolio company exits, investors of a venture capital fund make returns either in a merger and acquisition or an IPO. Along with the annual management fee, the fund will also keep a percentage of the profits, if the investment makes a profit.

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