As per estimates, the year 2016 witnessed a slump in start-up investments. An approximate amount of $1.452 billion found its way into Indian start-ups last year, registering an almost 44% decline over the 2015 investment of $2.606 billion.
To cushion the impact of a dip in funding, several entrepreneurs are going the unconventional route by having customers who love the products or services invest into their businesses.
Entrepreneurs feel that having customers as investors is a big testament to the quality of their products and services and to their business models.
Tea start-up Teabox has Robert M Bass, president of Keystone Group LP and Singapore based angel-investor Cameron Jones amongst its investors. Bass and Jones were customers of Teabox who then turned investors. "Robert Bass in fact first discovered Teabox as a tea drinker. He loved the product so much that he went on to participate in the round of investment. There couldn't have been a bigger testament to the quality of our product," says Kaushal Dugar, founder and CEO, Teabox, adding that getting a customer to like the product so much that he decides to invest in the company is often a big challenge for any company.
Meanwhile, the New Delhi and Delaware-based social e-commerce firm Sagoon has been going about raising about $20 million through a mini-IPO with registered users and followers of the venture applying for the mini-IPO. Sagoon has already given shares to 2,000 of its users and followers and is in the process of giving out more shares.
The self-drive car rental company Mylescars, on the other hand, recently launched an initiative to rope in its users as key stakeholders. The company introduced the Myles Angels Programme through which users of the Myles platform could become 'owners' by buying a car, getting it registered under a self-drive licence and deploying the car on the Myles platform for other users to rent out. The car owner ends up earning 70% of what the car gets through self-drive rentals through the platform. "This programme will help us attain scale. We have already added 200 new cars to our fleet through this initiative," says Sakshi Vij, founder & CEO, Mylescars.com. Vij adds that the company plans to grow its fleet size from the present 1,200 cars to 5,000 in the next 12 months' time, with this programme being a chief driver.
Experts say having customers as investors and key stakeholders helps a start-up receive some amount of funding, enhance its scale and gain credibility in the market. "However, a customer as an angel investor is a short-term proposition. Start-ups eventually need private equities(PEs) and venture capitals (VCs) to channel them ahead and make them scalable and sustainable in the long run," says an industry veteran.
EXTENDING THE TRUST FACTOR
- To cushion the impact of a dip in funding, several entrepreneurs are going the unconventional route
- By having customers who love the products or services invest into the businesses, they are solving funding woes
- Experts say having customers as investors, key stakeholders helps a start-up receive some amount of funding
- Not just this, what this also helps in is enhancing its scale and gaining credibility in the market
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