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Faced with a dearth of pure-play themes in the secondary markets, seasoned investors like Vijay Kedia, Mukul Mahavir Agrawal, and the Jhunjhunwalas have trained their sights on the start-up world.
Illustration: Raj Verma
The next time you look at the stock market ticker and wonder which bull or bear is moving the Street, know that quite a few big-time investors also hunt in the multiverse. They are betting on the parallel world of yet-to-be-listed start-ups driven by entrepreneurs with dreams of changing the way we do things, talking of angels (investors) and fighting demons (of negative cash flows).
Some of these market veterans have seen 100x returns, some the gut-wrenching thrill of losing everything, and some are in it also because they can do all this while mentoring founders with an idea but no idea of running a business.
From legends such as the late Rakesh Jhunjhunwala to Vijay Kedia, Ashish Kacholia, Mukul Mahavir Agrawal, and Ashish Dhawan to Safir Anand and Ambareesh Baliga, all have invested in the start-up space. These big guns hunt for pure-play themes such as cybersecurity, 3D printing, fantasy games, hi-tech, insurtech, or shared office spaces, among others. All are hard to find in secondary markets. The lure? A start-up gives investors a chance to ride the innovation wave and make mind-boggling returns if it clicks. And then debuts in the secondary market. Take this: the listing of India’s first pure-play cybersecurity firm, TAC Infosec, turned Vijay Kedia and his son Ankit’s angel investment of Rs 45 lakh (for a 20% stake) into more than Rs 40 crore in a little over six years when the firm debuted on the bourses in April 2024.
“ We have a proven franchise model that helps in rapid expansion... It is attractive to investors for its ability to quickly multiply outlets and increase revenue potential ”
KABIR JEET SINGH
Co-founder & CEO
Burger Singh
Vijay Kedia, a Mumbai-based investor whose listed holdings were worth Rs 1,650 crore as of May 24, 2024, is known for picking quality shares on stock exchanges at an early stage. His start-up portfolio shows he is bullish on AI firms, tutoring services, and manufacturers of fibre 3D printers, among others. Tracxn, which tracks start-ups from seeds to unicorns, says Kedia held an 8.69% stake in Onward Assist, an AI-powered platform for cancer diagnostics. He also has a 7.75% stake in Fabheads Automation, a manufacturer of fibre 3D printers, and a 5.49% stake in DheeYantra Research Labs, which offers conversational assistants that support Indian languages. DheeYantra posted a net profit of Rs 6.9 lakh in FY23, its first-ever, against a loss of Rs 79.9 lakh in FY22. Onward Assist posted a net loss of Rs 1.06 crore, and Fabheads had a net loss of Rs 6.11 crore in FY23.
But why invest in start-ups when you can play in the universe of listed firms? The challenge and the adventure, says Kedia, MD of Kedia Securities. “An individual investor requires a small amount to invest in a start-up. If the venture becomes successful, it may deliver 100x or multi-fold kind of returns. That is why I invest in start-ups,” he says. Tracking and identifying start-ups helps him learn new things. “But the risk is huge. It is a zero or multi-bagger game. Every company looks good in the beginning,” he says.
Kedia runs with a SMILE in the listed space and hunts with CAMP while looking for good start-ups. SMILE is his acronym for Small in size, Medium in experience, Large in aspiration and Extra-large in market potential. For start-ups, CAMP is more accurate: Capabilities of a key person, Market opportunity of the products, and Product’s potential to disrupt the market.
Kedia’s start-up portfolio also showed that, in June 2021, he had invested `71.40 lakh in Upside AI, which sought to use machine learning to make investment decisions. The fintech firm shut down in 2023. Later, Upside AI Co-founder Kanika Agarrwal explained in a thread on X in December why it failed: “We were growing so quickly that we didn’t see that there is a ceiling on where our products or efforts would take us…. we could have executed better.”
Kedia, who started his investing journey in 1989, believes that the chances of making money as an individual investor while investing in start-ups are very bleak. However, he advises investors to invest in start-ups through funds, as they have professionals who do the research before investing.
“ [Vijay Kedia’s investment in TAC Infosec] not only validates our mission and strategies but also instils a deep sense of trust and credibility among other potential investors and partners ”
TRISHNEET ARORA
Founder & CEO
TAC Infosec
Even the late Rakesh Jhunjhunwala, who was called the Warren Buffett of India, caught the start-up investing bug. Jhunjhunwala began with a capital of Rs 5,000 in 1985; today, his listed portfolio (jointly held with his wife Rekha) is worth nearly Rs 50,000 crore. This makes Rekha Jhunjhunwala India’s second biggest individual investor after DMart Founder Radhakishan Damani whose portfolio is worth more than Rs 2 lakh crore. Rakesh Jhunjhunwala, a self-made trader, investor and businessman, was also known as the ‘Big Bull’ of D-Street. Data available with Tracxn showed that he was also aggressive in the unlisted and start-up space as he was eyeing sectors such as media and entertainment, aviation, in-house interior designing services, and SaaS players, among others.
However, the Jhunjhunwalas had very limited investment in start-ups. Their first such was in low-cost airline Akasa Air. It was promoted by two aviation industry veterans and had the Jhunjhunwalas as the biggest investor (38%). Jhunjhunwala’s risk was that he was investing in an airline when others were negative on the sector. During the launch, Jhunjhunwala said, “We have a game plan. It is better to try and fail rather than not try at all.”
Madhusudan Kela, who holds listed shares worth more than Rs 2,000 crore, also holds a stake in Akasa Air (0.7%, worth Rs 4.5 crore).
Jhunjhunwala and his brother Rajesh together held a 43.9% stake in the integrated omnichannel financial services platform airpay, which was founded in 2012 and has raised $3.63 million so far. Among his other investments, he acquired a 1.2% stake in Bengaluru-based RezNext in November 2014. RezNext is a SaaS or software as a service platform for hoteliers and channel managers.
Vijay Kedia
MD
Kedia Securities
Jhunjhunwala, who passed away at age 62 on August 14, 2022, was very bullish on the India growth story. A week before his death, he told an interviewer that India was entering a golden period and could grow at 10% a year.
The Kedias and the Jhuhjhunwalas aren’t the only prominent market players who hunt for start-ups. Mukul Mahavir Agrawal, Chairman & Founder of Param Capital, holds a listed portfolio of more than Rs 5,000 crore. According to Trendlyne data, he is the latest star of the Indian stock market, as the value of his listed portfolio soared 1,417% since the Covid-19 lows of Rs 337.49 crore in March 2020. He is also known for picking little-known and small-cap stocks from bourses.
Agrawal holds around 3% stake in Ketto, an online crowdfunding platform for social causes. He also holds 6.7% in Credilio, an online marketplace for personal loans. On March 31, 2022, he invested Rs 5 crore for a 0.9% stake in Fantasy Akhada, a sports platform for fantasy games. That investment is worth Rs 8.8 crore, according to Tracxn. Valuations of unlisted start-ups usually change because of factors such as cash flows, funding rounds, earnings, and working capital, among others.
“ Flexible workspaces offer a payas-you-go model, allowing businesses to manage costs more efficiently. This flexibility is particularly attractive for start-ups ”
AMIT RAMANI
Founder & CEO
Awfis Space Solutions
In edtech, Agrawal holds a 3.15% stake in LogIQids worth Rs 1.3 crore. He also holds a 1.3% stake in SpeEdLabs, a tech-enabled tutoring platform for competitive exams. His SpeEdLabs stake is worth Rs 2.1 crore at present, up 1.4 times against the investment of Rs 1.5 crore.
“I do not have any fixed strategy. I look for mature start-ups, and promoters should be solving a problem through their start-up. Overall, the business idea should be solid, and the start-up should not be founded just for the sake of starting a start-up,” says Agrawal.
Then there’s Noida-based individual investor and lawyer Safir Anand, who has over 220,000 followers on X. As of March 31, 2024, Anand held a little over 1% stake in small-cap listed firms Poojawestern Metaliks and Shree Pacetronix. His start-up portfolio includes companies from fintech, semiconductors, and media and entertainment. According to Tracxn, he holds a 0.11% stake in the online interactive storytelling platform KahaniBox and 0.17% in AI-based virtual trial solutions for beauty brands Orbo AI.
Before investing, he looks at what problem the start-up wants to address. “I also zero in on factors such as the opportunity side, how the promoters are towards the problem, humbleness and education of promoters. Promoters should also be hungry for growth and have skin in the game. I am not a fan of claims that in the past one of the promoters sold ‘XYZ’ start-up at a dream price as there may not be a correlation of one success to another,” Anand says.
Why are ace market players investing in start-ups? One reason is listing gains, like the one made by the Kedias. Trishneet Arora, Founder and CEO of TAC Infosec, says Vijay Kedia’s decision to invest was driven by his vision to “support and elevate innovative ventures that promise robust growth and substantial impact”. Of course, getting a respected investor like Kedia on board was great for TAC. “It not only validates our mission and strategies but also instils a deep sense of trust and credibility among other potential investors and partners,” he says.
Amit Ramani, Founder and CEO of Awfis Space Solutions, in which ace investor Ashish Kacholia holds a stake, says, “Traditional office setups involve substantial upfront costs and long-term leases, whereas flexible workspaces offer a pay-as-you-go model, allowing businesses to manage costs more efficiently.”
Safir Anand
Investor
Kacholia invested Rs 50 crore for a 5% stake in Awfis; when the co-working platform listed on the bourses on May 30, his stake was worth Rs 150 crore. Known as the Big Whale of the Indian stock markets, Kacholia also owns stakes in start-ups in energy, fintech, and consumer goods, among other industries. On May 24, his holdings in listed shares were worth nearly Rs 3,100 crore.
Awfis reported a 103% YoY growth in revenues to Rs 565.80 crore in FY23. While its operating profit increased by 95.67% YoY to Rs 176.1 crore, it reported a net loss of Rs 46.60 crore in FY23 against a net loss of Rs 57.20 crore in FY22.
According to Tracxn, Kacholia’s investment of Rs 16.9 crore for a 26.7% stake in Smartivity, a provider of AR-based educational toys and kits, has grown to Rs 26 crore. Kacholia also owns a 1.1% stake in Everest Fleet, an end-to-end management solution for fleet taxi operators.
“ The insurtech space in India is booming. With low insurance penetration and evolving consumer needs, there is a massive opportunity for players to offer tailormade products for consumers ”
ANIMESH DAS
CEO
ACKO
Kacholia owns 0.7% of SUN Mobility, which runs a network of swappable battery stations for electric vehicles. Param Capital’s Agrawal also own 0.7% of SUN Mobility.
Ace investor Akash Bhansali, whose investment in listed stocks was more than Rs 5,500 crore as of May 24, 2024, holds 4.8% in Gurugram-based Monsoon Fintech, an AI-based alternative credit scoring solution for lenders. Tracxn data shows his unrealised return on a post-round cumulative investment of Rs 92.50 lakh in the start-up has grown fourfold to Rs 3.7 crore.
Then there’s Ashish Dhawan, who holds listed shares worth nearly Rs 3,650 crore as of May 24 and has backed start-ups such as ACKO. Dhawan has a 1.4% stake in the multi-category digital insurance and claims management solutions firm. “The insurtech space in India is booming. With low insurance penetration in the country and evolving consumer needs, there is a massive opportunity for players to offer tailor-made products,” says ACKO CEO Animesh Das.
Dhawan’s holding in Gurugram-based Burger Singh, a restaurant chain serving burgers, was 11.7% as of May 24, 2024. The value of his post-round cumulative investment 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 more than 60 angel investors? “The positive of Burger Singh is its proven franchise model, which helps us expand rapidly,” says Co-founder & CEO Kabir Jeet Singh.
Dhawan also owns a 0.49% stake in Slurrp Farm, an internet-first brand offering millet-based foods for kids and toddlers. Sadhan, a tech-enabled logistics service provider, is also in his start-up portfolio. With a stake of 9.4%, his Rs 10-crore investment in Sadhan was worth nearly Rs 75 crore, Tracxn data shows. Likewise, the name of Sunil Singhania, Founder of Abakkus Asset Manager LLP, also appeared among investors in Bengaluru-based fintech start-up BankSathi, which raised $4 million in a new round from a couple of investors in January 2023. Singhania declined to speak about the start-up space and his investments.
Independent market analyst Ambareesh Baliga, who has nearly four decades of market experience and has worked with financial firms such as Karvy and Edelweiss, says he has invested in start-ups such as Basic Home Loans, an online platform for home loans; Nova Nova, which offers healthy snacks; and AdOnMo, which offers digital screen-based ad solutions. “Tyke, Castler, Celcius, Let’s Try, Zypp Electric, Autocracy, ALYF (ShareNest), BluSmart and Ease My Trade (StockDaddy) are among other start-ups where I am invested,” he says.
Ambareesh Baliga
Independent Market Analyst and Investor
Baliga invests in start-ups at an early stage, which is completely contrary to his investment process in the secondary market. “My investment decisions at this stage are driven purely by a few key metrics—the founders, their background, clarity of what they want the start-up to be and how they can take it there. The product today and the potential for it to change/pivot based on market factors and scaleability in the next two to three years. It’s important for the founders to be passionate about the business; however, just being passionate without a clear scheme to implement the goals can be disastrous,” he says.
Why are big investors hunting for start-ups when there are thousands of listed firms? It’s not just about the returns, says Rishiraj Maheshwari, Founder and CEO of RISCH Wealth & RISCH Family Office. “Ace investors from equity markets often have significant experience in both entrepreneurship and investing,” says Maheshwari. “Many have built successful businesses themselves and have a keen eye for promising start-ups. Their experience allows them to assess the potential of early-stage companies, identify risks, and provide valuable mentorship to the founders they invest in. Additionally, their networks and connections can be invaluable resources for the start-ups they support.”
What about the risks in betting on a start-up that could flop? Safir Anand says promoter mindset is the first risk. “Many promoters are initially focussed on work and business, but as they raise rounds of money, hubris sets in. They start daydreaming about the valuations surging and themselves as the next millionaires or billionaires and focussing less on the business.”
Anand says there are conflicts of interest between venture capitalists (VCs) and businesses. A VC usually wants to exit within a fixed period and is guided by IRR or the internal rate of return. “The VC sometimes pushes businesses to grow even if growth is a negative to cash flows and laden with risks.”
Prateek Jain, Associate Director-Start-up and Alliances, Alliance of Digital India Foundation (ADIF), an Indian policy think tank, says the first risk is the recovery of the investments. The start-up could be blindsided by market forces, changes in consumer behaviour or government policies despite the due diligence put in by the investor or VC.
“Start-ups are inherently risky due to their uncertain future and the possibility of failure. However, successful investments can yield substantial rewards, including financial gains and the satisfaction of backing innovative ideas. Diversify a portfolio, conduct thorough research, and be prepared for the long-term commitment required in start-up investing,” says Maheshwari.
Citing his investment journey, he says it could be a lengthy voyage, with many start-ups bearing fruit but no jackpots, “My venture into start-up investing has been an intriguing and enlightening personal journey. Initially driven by passion, I supported various ideas and invested my own funds. However, the financial success I anticipated didn’t materialise,” he says.
Baliga says the biggest risk is the start-up going belly-up. Other risks include liquidity since you cannot exit when you want to. Even for start-ups that are doing decently well, an unscheduled exit by an investor could be at a discount.
Steer clear of entrepreneurs who do not have a fair idea of the problems they are trying to solve, the veterans say. “Everyone is rushing to make apps and websites with fancy names without even understanding the legal or compliance and other important things,” says Jain. So, many investors have an army of experts ready to do the due diligence, he says.
Is it wise to invest in loss-making start-ups? Baliga says quite a few of the start-ups he invested in are loss-making, but one should be able to see positive cash flows down the line. The probability of going wrong is higher than in the secondary market, but investors may also end up with multibaggers, he says.
“Start-up is a high-risk and high-reward space. I would first evaluate risks from the perspective of a co-founder/promoter,” says Soumya Malani, a Kolkata-based investor in small caps who is also an investor and co-founder of start-ups such as QSR Chaigram, pet food firm Filomilo, and snacks and beverages firm TABP Snacks and Beverages.
Malani says it is essential for all co-founders to be on the same page. “We often see that after a point, there are differences of opinion amongst co-founders…. This can lead to a lot of friction and can negatively affect the start-up,” he says.
The most important element of any start-up investing is to bet on the right promoter. “The reward in the start-up universe could be astronomical if you get it right,” he says.
So, what is the checklist for an investor hunting for start-ups? Prioritise due diligence, be a mentor and look for sustainable business models.
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