Crypto Currency Future in India

What are Cryptocurrencies?

Since centuries, physical tokens are being used as a means of payment (e.g. shells, gold coins, bank notes). In such a market, a direct exchange of sellers’ merchandise and buyers’ tokens permits them to realize a fast and final settlement. This option is inaccessible, however, when the two parties are not present in the same location (e.g. ecommerce), necessitating the usage of digital tokens. This downside may be solved simply when there’s a trusty third party (e.g. PayPal) who manages a centralized ledger and transfers balances by crediting and debiting patrons and sellers’ accounts. Within the absence of a 3rd party, however, cryptocurrencies like Bitcoin are used as a digital means that of payment in a highly distributed network. Cryptocurrencies work through a distributed verification of transactions, changing and storing a record of dealing histories. This necessitates that accord between the users is maintained regarding the right record of transactions. This trust in the currency is established by having a contest for the right to update records. This competition can take various forms. In Bitcoin, this is through a method known as mining. Miners (i.e. dealing validators) vie to solve a computationally expensive problem (proof-ofwork). The winner of this mining method has the right to update the record and be the first to propose a brand-new history to the network. Cryptocurrencies are engineered on cryptography. They are thus known to be secure as a result of the consensus-keeping method is secured by sturdy cryptography. They are not secured by people or by trust but by mathematics. Describing the properties of cryptocurrencies, its convenient to separate them between transactional and financial properties. A few of them are:

Transactional properties

Irreversible: Once confirmed, a transaction can’t be reversed. If you send cash, you send it. Nobody can assist you if you sent your funds to a scammer or if a hacker stole them from your computer. There’s no safety net.

Pseudonymous: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins on supposed addresses, which are randomly seeming chains of around 30 characters. Whereas it’s sometimes possible to trace the transaction flow, it’s not essentially attainable to attach the real-world identity of users with those addresses.

Fast and global: Transactions are generated nearly instantly in the network and are confirmed in a few minutes. Since they happen in a world network of computers, they are indifferent to your physical location.

Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of the personal key can send cryptocurrency. Sturdy cryptography and the magic of numbers makes it impossible to interrupt this theme.

Permission-less: You don’t need to consult anybody to use cryptocurrency. It’s just a software that everybody can download for free. Once you put in it, you’ll be able to receive and send Bitcoins or different cryptocurrencies. Nobody can prevent you. Monetary properties

Controlled supply: Most cryptocurrencies limit the provision of the tokens. In Bitcoin, the provision decreases with time and will reach its final number someday round the year 2140. All cryptocurrencies manage the supply of the token by a schedule written in the code. This suggests the supply of a cryptocurrency at each given moment in the long term can roughly be calculated. There is no surprise.

No debt but bearer: The fiat-money on your checking account is formed by debt, and therefore the numbers you see on your ledger represent nothing but debts. It’s a system of promissory note. Cryptocurrencies don’t represent debts. they simply represent themselves.To understand the revolutionary impact of cryptocurrencies, we ought to take into account both properties. Bitcoin as a permission-less, irreversible and pseudonymous means of payment is an attack on the management of banks and governments over the financial transactions of their voters. You can’t hinder somebody to use Bitcoin, you can’t command somebody to settle for a payment, you can’t undo a transaction. (Jonathan Chiu, 2017) (Granger, 2018)

 

Factors affecting volatility

  • No Intrinsic Value: Despite the sized valuations, cryptocurrencies (including Bitcoin) don’t sell a product, hire thousands of individuals or earn revenue. They often don’t generate dividends and just a small amount of the entire price of the currency goes into evolving it. Thus, it’s exhausting to value. Unlike paper money it has no intrinsic value.
  • Lack of Regulatory Oversight: Cryptocurrencies are a worldwide recognized and acknowledged development in digital money. Whereas governments are clamping down on this business, regulation remains in its adolescent stages. With restricted regulation on this market, investors are discouraged to invest. As an large sum of the fund has no assurances that the capital is really secure or protected against bad actors, many folks realize it to be unsafe and due to this uncertainty to invest, the costs fluctuate heavily.
  • Lack of Institutional Capital: It is indisputable that some venture capital companies, hedge funds, and high net􀀀worth people are investors in the cryptocurrency world. However, most of the institutional capital remains on the sidelines. Most of the banking heads also admit that there’s some validity in the crypto space, but have yet to commit a significant amount of capital or participation in public.
  • Thin Order Books: Cryptocurrency investors are educated to never keep coins on an exchange. This is because there’s a high risk of getting hacked. As a result, most of the tradable supply of coins isn’t on an exchange order book but in off-exchange wallets. On the contrary, most the tradeable stock of a in public listed firm is transacted on one exchange. Thanks to the capability of giant traders to maneuver the cryptocurrency market in either direction and implement fruitful ways to encourage this, volatility mark of cryptocurrencies goes up.
  • Short Term vs. Long Term: Cryptocurrencies could also be a decent choice for short-term investors, but for someone who is investing in something that promises returns after a decade or more (long-term investment), they are of very little interest. They cannot be bought while you’re retiring from accounts and are sometimes unapproachable to financial advisors and retail brokers, thus a complete system of investors is left out.
  • Low Liquidity: Various analysts have declared that bitcoin suffers from liquidity issues, which could successively be contributing to bitcoin’s sharp volatility. Having less liquidity – instead of more – can doubtlessly exacerbate value fluctuations, making it so the digital currency’s inevitable declines are more severe than they might be otherwise.
  • Sensitive to Market Sentiments: If the sentiment encompassing bitcoin becomes more positive, this may result in a sharp increase in demand and notable upswings in price. Further, price gains and optimism can combine to form media hype cycles. Basically, these present itself when ascension values provoke larger media coverage, which successively spur extra purchases and price appreciation. Changes in sentiment can have the precise opposite result on price in addition. If an asset bubble bursts, and investors begin fleeing an asset like bitcoin, the plunging prices can prompt widespread media coverage, causing even more market participants to either sell the asset or just avoid purchasing it.
  • Inequality of Wealth: Another factor that could potentially fuel bitcoin’s price volatility is how unevenly it is distributed. If a single individual procures a notable amount of bitcoin, he/she can trigger price fluctuations by selling just a minute fraction of his/her bitcoin holdings. Also, these individuals could potentially coordinate and work together to cause sizable shifts in bitcoin prices.
  • Key Role of Speculation: When thought of as a payment instrument, cryptocurrencies seem likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions. The current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment. This speculation makes the currency volatile and not as stable as conventional forms of investment. There are many different factors that help fuel volatility in bitcoin. Variables including the digital currency’s small market size, low liquidity and immature regulatory environment can all help contribute to bitcoin’s sharp price fluctuations. As a result, investors who are interested in the digital currency may benefit significantly from conducting thorough due diligence before getting involved.

 

Crypto Currency and its Future in India

The latest thing in the technological world which gained most of the limelight in past 2-3 years is what’s called “virtual currency” or “cryptocurrency”. The most popular is “bitcoin”. Not only individuals but even large organisations have started accepting payments in the form of cryptocurrency. But in February 2018, our Finance Minister Mr. ArunJaitley announced that the use of Bitcoin will not be promoted in our country and they want to get rid of this decentralised form of currency. On April 6, 2018, RBI made an announcement that “…any bank or financial institution regulated by RBI will not deal in virtual currencies.”. Even countries like Russia, Bolivia, and Taiwan posed the restriction on usage of Cryptocurrency.

It has been nearly 6 years as of now since cryptocurrency entered our country’s market. Indian exchanges are planning to launch cryptocurrency which will not only supports bitcoins but other digital currencies like Ethereum, Ripple, Bitcoin Cash and more. There are nearly 1000 different types of coins in the market.

But now cryptocurrencies are no longer considered legal in India and if you trade bitcoins you cannot convert it into Indian currency.

There are some reasons because of which the use of cryptocurrency is banned in India. Because of the intangible nature of cryptocurrencies, it is very difficult to trace the location of its transactions. Cryptocurrencies can also be used by terrorists. Also it can lead to tax evasion as the transaction cannot be perfectly evaluated

Bitcoin and other cryptocurrencies are outstanding technological innovations. By using the block chain method, the transactions can be secured. But there is a need of a regulating government body to study and overlook all the ongoing transactions.  Cryptocurrency organisations along with the Policy makers can create a significant and secure currency exchange and hopefully it will not lose its charm.

Nevertheless, the “block chain technology” can be used by banks or other regulators to create decentralized platforms and secure the transactions. There are many records in India which are centralized kept in the offices of banks or real estate offices or government offices. These registers or papers or documents can be easily altered or tampered. With the use of block chain technology, the documents or transactions can be decentralized and can be more secured.

In short, the legitimate use of Bitcoin or other crypto currencies in near future is doubtful, but the use of block chain technology certainly has a long way to go.

 

Conclusion

Cryptocurrencies are decentralized digital assets that have taken the world by storm. However, as financial instruments, they are poorly understood and the general lack of awareness has prevented their mainstream adoption.

 

Syndicate Funding

With entry of several new players and rigorous growth in innovation, the startup funding landscape has changed significantly over the past few years all around the globe. Earlier, what used to be a game only for large scale venture capitalists and angel investors, is now open to inexperienced players through alternative funding vehicles like co-investment & syndicate funding, improving the complete ecosystem.

The world we’re looking at today is a world of start-ups, of which angel investing is becoming an inseparable part. Crowdfunding is creating a unique path for learning through a system called syndicate funding. This system allows professional business angels and crowd investors to participate on the same deals. A syndicate is a fund created to make a single investment. They are led by experienced technology investors, and financed by institutional investors and sophisticated angels. Syndicates are private. Investors can participate by applying to back a lead or investing in a fund.

Backer – A backer is an investor that either does not have a lot of experience in startup investing or, even if he or she does, heʼd rather allow someone else -the leader- manage the investments and choose the startups in which to invest.

Leaders – Syndicate leaders are business angels with vast experience in selecting investment opportunities and investing in then, in various technology sectors and with dealflow that most investors donʼt have access to. They tend to be angels -or successful startup founders- who have been part of the industry for many years and know its ins and outs.

How do syndicates work?

The lead investor chooses a startup that he considers a great investment opportunity. He opens the opportunity to other investors, offering relevant data related to the deal (valuation, amount to be raised, etc)  and he specifies the amount of time available to close the investment. If the backer is interested, it will specify the amount he or she is willing to invest and three signed documents: term sheet, investment agreement and a document in which the investor claims to understand the risk associated to startup investing and confirms he’s an accredited investor.

While the backers would not be able to influence the direction and strategy of the company, or be in charge of the bureaucracy, they will get the same economic deal, rupee to rupee.

VC firms vs Syndicates

The difference between VC firms and syndicates is not a major one, however these two differ on the basis of their decision making process prior to the investment.  While VCs generally review deals and make decision collectively within their partnership, under syndicates, a lead investor brings a deal to its syndicatesʼ backers, who, thereafter, decide whether or not they want to invest. As these back investors are generally not professional investors they usually bank on the decision of lead bankers for finding the avenues to invest in.

Hence, we can also say that since the decision made under syndicates are not collective decisions of all the investors like the VC firms, the syndicates are likely to earn lower returns. Also, syndicate banking lacks reputation in terms of investors. Since VC firms have more of the reputable and lead investors, it creates a kind of brand which attracts the bigger firms more towards the VC funding than to the Syndicate funding where only the lead investors are experienced and reputable ones.   In this case, theyʼre hence less likely to convince the best entrepreneurs to opt for their investments, and in the end less likely to perform — at least not before the end of a first cycle. On the other hand, the process of investment is much speedier in Syndicates as compared to that in VCs, probably because of the increase in the number of investors involved. This greater number of investors also creates a higher scale of publicity of the company.

Hence, here the Syndicate firms take a front seat. Syndicates become an important source of funding, but they are more of a complement than a substitute to the traditional VC firms.

Difference between Equity Crowdfunding and Syndicate Funding

Equity crowdfunding and Syndicate funding are both different alternatives provided for startups to raise funds at an initial stage. Equity crowdfunding is a form of crowdfunding that is vastly different from reward-based crowdfunding. Equity crowdfunding platforms allow startups to create campaigns to showcase themselves to professional investors. These investors, after analyzing the startupʼs financial information and data, can invest in such companies, getting equity in return or a percentage of future sales, revenue or profit. Syndicate funding platforms, on the other hand, add value by putting together three elements: a startup, a lead investor and backers.

Some Frequently Asked Questions:

As a startup founder or CEO, why should I consider choose syndicate funding over other options?
Itʼs important to note that going for syndicate funding does not mean that, as startup, you should not approach other financing vehicles prior or after syndicates.

As weʼve covered extensively, syndicate funding has a series of characteristics that are well suited for early stage startups, but this does not mean that the fact that youʼve raised money from friends, fools and family keeps you from raising money through syndicates later on. The same goes for Venture Capital firms: startups that have raised funding through syndicates and are successful will probably go on to raise money from traditional Venture Capital firms later on.

Syndicates are interesting for startups because they offer a series of advances.

As a CEO, am I going to deal with not only a lead investor, but also with various backers?
As weʼve explained in the previous question, no, startups and its founders wonʼt have to deal with more investors than usual. Startupxplore will help the lead investor manage his or her relationship with backers, making life easier for the entrepreneur.

Can the startup access the know-how of investors (leaders and backers)?
Yes, and thatʼs precisely one of the key advantages of syndicates. While raising money from business angels you can rely on that angel to support the company and become a mentor, with syndicates startups have access to a much greater pool of knowledge.

Not only from the leader, but also from backers who can have different backgrounds and expertise that might benefit the startup in certain business- related situations.

Do founders and CEOs have to spend a lot of time managing the investment?
No. Thatʼs exactly one of the advantages of syndicate funding. Startupxplore and the startups themselves must reach an agreement to open their new fundraising process to outside investors. In regards to lead investors, there are two possible scenarios: the startup will provide a lead investor or the lead investor will suggest a startup to fundraise.

The expenses associated to the creation of the investment vehicle are paid by the startup as part of the commission.

Along with venture capital, syndicates have become an important source of funding during the seed stage.But with greater transperancy in the ecosystem through online platforms, it has surely initiated a new financing revolution and its importance will only increase in the years to come.

 

 

(Source : https://startupxplore.com/en/blog/basics-startup-syndicate-funding/)

From Pre-seed to IPO: Start-up Funding Stages Explained

Nearly every week, we hear start-ups in India raise one funding round or another. Here, we take a closer look at the types of rounds and what they mean.

Here’s the truth: It is not that uncommon to have a great, life-transforming idea for a start-up business. However, most innovative ideas can too fail to bear fruits as it is quite a bit more complicated to swell through the stages of start-up funding.

Being an entrepreneur requires much more than a great idea – it requires time, dedication, discipline and perhaps most of all, money. And despite the way that the term “angel investor” gets thrown around, it is pretty unlikely that you’re going to just get a major windfall of cash from a generous individual who’s just dying to back your somewhat amorphous idea.

Usually, every growing start-up has to undergo three stages of financing which is based upon corresponding valuation at each stage due to several factors, including the track record of the founder(s) and management team, potential market size, and overall risk.

If you’re new to the world of start-ups and have no idea about raising funds, then you need to make yourself familiar with these different stages first.

 


(source : http://www.evus.com/blog/startup-funding-stages/)

 

Stage I: The Pre-Seed Stage
“I’ve a great idea but need money to bring it to the market.”

Fact: Venture capitalists almost never invest into businesses at the ideation stage.
At this stage, you have an idea, maybe a working prototype and are looking for funding that will allow you to focus on your project full time. Understand that you’ll have to begin the development with your own funds, investments from friends and family, accelerators , and perhaps an angel investor if you’re really lucky.

It is the stage where viability of an idea can be tested, approximate cost can be estimated and a business model can be formulated from the seed of an idea. This could be considered the true bootstrapping stage, when you create and launch your product.

Stage II: The Seed Capital Stage
“I’ve launched my product and showing positive traction.”

Not to be confused with the pre-seed capital, seed capital is required to identify and create a perfect direction for your start-up and to start the operations. Funds raised at this stage are used for knowing the customers’ demands, preferences, and tastes, and then formulating a product or service accordingly.

The main providers of capital at this stage are friends & family, business angels, super angels and early stage Venture Capital firms.  However, in recent years, alternative funding vehicles like crowd-funding and syndicate financing  have emerged as major players in providing seed capital to budding business, reimagining the start-up ecosystem altogether.

There’s a higher need of investment to support the business at their early stage because it probably won’t be generating a big enough cash flow to cover all the day-to-day running costs. Several start-ups fail to overcome the Valley of Death as they fail to orient their product with market needs & raise additional capital.

Stage III: Series A Round
“I’ve understood my product & market and it’s time to grow.”

Start-ups that reach to this stage have usually figured out their product, the size & demands of their market, it may further optimize its user base and product offerings.  Series A funding is mostly used for marketing and improving your brand credibility, tapping new markets and helping the business grow.

Typically, Series A rounds raise approximately $2 million to $5 million through traditional venture capitalists, angel investors, syndicates etc. In Series A funding, investors are not just looking for great ideas. Rather, they are looking for companies with great ideas as well as a strong strategy for turning that idea into a successful, money-making business.

Stage IV : Series B Round
“Attention : We’re well on our way.”

Series B rounds are all about taking businesses to the next level, past the development stage. At this point, your company and product(s) should be fairly well established, and you should be focusing on expanding both internally by growing your team and externally by growing globally and potentially acquiring complementary or competing companies and/or technology.

Estimated capital raised in a Series B round tends to be somewhere between roughly $6 million and $10 million. The major difference between Series A and Series B is the addition of a new wave of other venture capital firms that specialize in later stage investing.

Stage V : Series C and following Rounds
“Let’s scale up.”

Businesses that make it to Series C funding sessions are already quite successful. These companies look for additional funding in order to help them develop new products, expand into new markets, or even to acquire other companies. Series C funding is focused on scaling the company, growing as quickly and as successfully as possible.

Financing rounds at these stages tend to range above $10 million to hundreds of millions. A clear difference between Series C and other rounds, besides the amount being invested, is that at this point private equity firms and investment banks tend to be the lead investors, with the participation of large Venture Capital firms.

A start-up can receive as many rounds of investment as possible; there is no certain restriction on it. However, owners are pretty cautious in subsequent rounds because more investment rounds lead to more release of the business’ equity.

Stage VI : Bridge Loans & Mezzanine Financing

“We are almost there but need a little help.”

At this point, companies may be eyeing for opportunities that require additional funds like initiating IPO, acquiring a major competitor(s), or even a management buyout by a larger firm or competitor.  To fulfil this need, businesses look for short-term finance known as “bridge” loans.

These types of loans last six to twelve months and are typically paid back by funds raised during an IPO, since they serve to bridge the gap between the end of stage 2 and the point of a business reaching maturity. At this point, a start-up is typically worth at least $100 million.

Stage VII : Initial Public Offering
“We are ready to be a Public Company.”

When a fully mature start-up decides to raise funds from the public including institutional investors as well as individuals, by selling its shares, it is known as an IPO (Initial Public Offering). IPO is commonly related to ‘going public’ as the general public now wants to invest in your company by buying shares.  IPO basically helps you grow and diversify in areas of choice. An average IPO bound start-up has raised $162 million before going public. (Source: Crunchbase)

This is the end of the road for many entrepreneurs. This final stage in the start-up process is when a company is deemed to have matured and be successful – your seed is now a full grown tree.

Hottest emerging sectors for 2018-19!

Starting a business is always a risk, but pursuing one of these promising sectors will definitely improve your odds, if only a good idea and a bit of luck were all you needed to launch a successful start-up!

The reality is that it takes a lot more. Timing, competition, and future market conditions can make or break a business. So, if you want yours to still be around in a year or 10, it’s vital to know which industries are ripe for innovation and new entrants. Here are some of the hottest sectors where you can capitalize the opportunity to get maximum returns:-

 

  • Content Marketing: Imagining marketing today without the use of content marketing is quite impossible. Content marketing is the fundamental part of most other aspects of digital marketing – fields like SEO, social media, and email marketing, all relies on effective content. Original & attractive content is must to define your brand, bring in new buyers, and create customer loyalty. And the growth of content marketing won’t be slowing down anytime soon; it’s projected to continue through 2019 and beyond.It used to be enough for companies to have a blog, but in 2019, creativity and sophistication will be the name of the content marketing game. To stay competitive, companies must start processing more like media publishers. This will translate into plenty of new opportunities – and challenges – for content marketing agencies and in-house creative teams alike.

 

  • BeautyTech: The integration of technology and the beauty business is creating an opportunity for start-ups to innovate both the products consumers buy and how they buy them. The industry is getting a makeover, with new offerings like “camera-ready” cosmetics that look great in photos and items that are highly customized–based on machine learning algorithms–for individual consumers. Advancements in technology make it easier for companies to create products specifically tailored to consumers’ preferences, from foundation that perfectly matches a client’s skin to shampoo that will treat her specific hair needs. Additionally, the growth of niche markets within the beauty industry gives startups an edge over mass beauty brands

 

  • Food Industry: India has witnessed a growing appetite for food startups, lately. A huge chunk of the market share can be contributed to these food commerce startups who well understand that food is considered a religion in this nation. Moreover, alternative-protein foods are making an ever-bigger splash in the food world. Whether it’s a vegan milk substitute made from peas, cricket protein, or meat-like products made from plants, customers have more options for their nutritional needs than ever. Indian VCs are behind food-tech start-ups owing to the rise in consumerism that is taking the food business to a new level altogether. The flourishing business is estimated to be pegged at around $20 billion by 2020.

 

  • Leisure & Entertainment: With “Netflix and chill” being the most favourite hobby of young adults in our nation, the entertainment and leisure industry in the nation is a rising sector in the economy with high growth strides. The sector is witnessing strong phase of growth and has, thus, proved its resilience to the world. With the dawn of digitization and higher internet usage in India, Internet has become a mainstream media for entertainment. By the year 2018, the industry is estimated to rise to $36.49 bn. Mobile app downloads for the current year are close to 9 bn.

 

  • Virtual Reality: In 2018, virtual reality becomes ever more main-stream, with many new players entering the game. Projects with the terms “augmented reality” or “virtual reality” are up 38 per cent compared to 2015 (and up by 514 per cent since 2013). It’s seen a massive increase in popularity – VR headsets have become some of the most coveted wish-list items for gamers, among other tech enthusiasts. Virtual reality is an open-ended field with tons of potential, so it’s hard to predict exactly which industries will be affected by the coming VR boom. It has obvious appeal for gamers, but it also has potential applications in therapy, job training, education, digital marketing, and safety testing.

 

  • DeepTech: Artificial intelligence and Big Data were quite possibly the most talked about sectors in the Indian startup ecosystem this year. Be it in ecommerce, fintech, banking, surveillance, customer service and support or analytics, or from intelligent shopping assistants to helpful conversational bots, deeptech is finding wider usage in our daily lives and will continue to do so.AI is has emerged as a promising technology that can help to deliver services across different segments efficiently and effectively, to a higher number of consumers at a very low cost. Big Data is the foundation of AI, since it enables AI to come up with predictive and prescriptive analysis.

 

  • Biotechnology: Biotechnology is the industry that sprang up at the intersection of biology and tech in the 1970s. It has the potential to solve a wide variety of problems in fields like medicine, agriculture, and industry, and as technology improves, biotech’s potential just keeps growing. Currently, biotech is grappling with lofty problems like developing new regenerative medicine technologies, finding treatments for hard-to-treat conditions like dementia and cancer, and feeding the world by improving the yield of crops. 2018 could bring exciting biotechnology breakthroughs that will make life better for people around the world.

 

Lots of different fields, from medicine to marketing and tech to leisure, are poised to achieve breakthroughs and revolutions. If you’re interested in any of these fields, there is no better time to start than right now!

Funding Alternatives

1. Venture Capitalists

Among the various financing​ options entrepreneurs can turn to when starting a new company is venture capital. Venture capital is money that is given to help build new startup firms that often are considered to have both high-growth and high-risk potential. These companies generally center on health care or new technology, including things such as software, the Internet and networking. In addition,a new breed of venture capital firms has recently formed to focus solely on investing in socially responsible companies.

Entrepreneurs often turn to venture capitalists for money because their company is so new, unproven and risky that more traditional forms of financing, such as through banks, aren’t readily available. Unlike other forms of financing where entrepreneurs are only required to pay back the loan amount plus interest, venture capital investments most commonly come in exchange for ownership shares in the company to ensure they have a say in its future direction.

 

Where does venture capital come from?

Venture capital funds come from venture capital firms, which comprise professional investors who understand the intricacies of financing and building newly formed companies. The money that venture capital firms invest comes from a variety of sources, including private and public pension funds, endowment funds, foundations, corporations and wealthy individuals, both domestic and foreign. Those who invest money in venture capital funds are considered limited partners, while the venture capitalists are the general partners charged with managing the fund and working with the individual companies.The general partners take a very active role in working with the company’s founders and executives to ensure the company is growing in a profitable way.

In exchange for their funding, venture capitalists expect a high return on their investment as well as shares of the company. This means the relationship between the two parties can be lengthy. Instead of working to pay back the loan immediately, the venture capitalists work with the company five to 10 years before any money is repaid. At the end of the investment, venture capitalists will sell their shares of the company back to the owners, or through an initial public offering, for what they hope is significantly more than they initially put in. The most recent available statistics found more than 450 active U.S. venture capital firms that had each invested at least $5 million. The firms had an average fund size of nearly $150 million.

Successful example of venture capitalists

  • Uber
  • Snapchat
  • Instagram

 

2. Crowd Funding

IT ​ ​is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet. Crowdfunding is a form of crowdsourcing and alternative finance. In 2015, a worldwide estimate totaling over US$34 billion was raised by crowdfunding.

Although similar concepts can also be executed through mail-order subscriptions, benefit events, and other methods, the term crowdfunding refers to Internet-mediated registries. This modern crowdfunding model is generally based on three types of actors: the project initiator who proposes the idea or project to be funded, individuals or groups who support the idea, and a moderating organization (the “platform”) that brings the parties together to launch the idea.

Crowdfunding has been used to fund a wide range of for-profit, entrepreneurial ventures such as artistic and creative projects, medical expenses, travel, or community-oriented social entrepreneurship projects.

 

TYPES :-

Reward-based

Rewards-based, or seed, crowdfunding is a type of small-business financing where entrepreneurs solicit financial donations from individuals in return for a product or service.  IThas been used for a wide range of purposes, including motion picture promotion, free software development, inventions development, scientific research, and civic projects.

Equity

Equity crowdfunding is the collective effort of individuals to support efforts initiated by other people or organizations through the provision of finance in the form of equity. Equity crowdfunding, unlike donation and rewards-based crowdfunding, involves the offer of securities which include the potential for a return on investment. Syndicates, which involve many investors following the strategy of a single lead investor, can be effective in reducing information asymmetry and in avoiding the outcome of market failure associated with equity crowdfunding.

Software value token

Another kind of crowdfunding is to raise funds for a project where a digital or software-based value token is offered as a reward to funders which is known as Initial coin offering (abbreviated to ICO). Value tokens are endogenously created by particular open decentralized networks that are used to incentivize client computers of the network to expend scarce computer resources on maintaining the protocol network

Debt-based

Debt-based crowdfunding (also known as “peer to peer”, “P2P”,  “marketplace lending”, or “crowdlending”) arose with the founding  of of​Zopa​Lending Club​ in the UK in 2005 and in the US in 2006, with the launches​ and ​Prosper.com​.​Borrowers apply online, generally for free, and their application is reviewed and verified by an automated system, which also determines the borrower’s credit risk and interest rate.

Litigation

Litigation crowdfunding allows plaintiffs or defendants to reach out to hundreds of their peers simultaneously in a semiprivate and confidential manner to obtain funding, either seeking donations or providing a reward in return for funding.

Donation-based

Running alongside reward-based crowdfunding, donation-based is second as the most commonly used form of crowdfunding. Charity donation-based crowdfunding is the collective effort of individuals to help charitable causes.

Successful examples of crowd funding

  • *BluffWorks: Raised over $340,000 on Kickstarter.
  • *Selfie With Me: Raised over $715,000 on Crowdfunder.

 

3. Invoice-Advances

Invoice financing is a way for​ businesses to borrow money against the amounts due from customers. Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full. Businesses pay a percentage of the invoice amount to the lender as a fee for borrowing the money. Invoice financing can solve problems associated with customers taking a long time to pay and difficulties obtaining other types of business credit.

Invoice financing is also known as “accounts receivable financing” or simply “receivables financing.”

 

Bootstrapping

Meaning

The process of utilizing personal saved up funds or funding from friends and​      family is known as bootstrapping or self -funding.

 

Suitability

Self-financing  is an effective way of startup funding, specially when you are just starting your business. First-time entrepreneurs often have trouble getting funding without first showing some a plan for potential success. You can invest from your own savings or can get your family and friends to contribute. This will be easy to raise due to less formalities/compliances, plus less costs of raising. In most situations, family and friends are flexible with the interest rate.

 

Pros

  • Funds can easily be accessed
  • Little or no bureaucratic obstacles
  • Flexible interest rates
  • Boot strapping can be beneficial, as the entrepreneur is able to maintain control over all decisions

 

Cons

  • Self financing doesn’t work for large businesses; it only works for small-scale enterprises
  • This form of financing may place unnecessary financial risk on the entrepreneur. Furthermore, boot strapping may not provide enough investment for the company to become successful at a reasonable rate.

 

Angel Investors

Meaning

Angel investors are basically people with a huge amount of capital and are willing to invest it on over the edge business ideas.

 

Objective

Capital angel investors provide may be a one-time investment to help the business propel or an ongoing injection of money to support and carry the company through its difficult early stages.

 

Investment profile:

Angel investors who seed startups that fail during their early stages lose their investments completely. This is why professional angel investors look for opportunities for a defined exit strategy, acquisitions or initial public offerings (IPOs).

 

The effective internal rate of returns for a successful portfolio for angel investors ranges from 20% to 30%. Though this may look good for investors and seem too expensive for entrepreneurs with early-stage businesses, cheaper sources of financing such as banks are not usually available for such business ventures. This makes angel investments perfect for entrepreneurs who are still financially struggling during the startup phase of their business.

Pros:

  • Angel investors offer mentorship alongside capital for startups.
  • Angel investors are willing to take risks on business idea as they anticipate heavy return on investment from your startup

 

Microfinance

Meaning:

Microfinance was set up to give access to capital to small-scale entrepreneurs that lack access to conventional banking capital or loans. Individuals with poor credit ratings see microfinance institutions as a respite whenever they are out of favor by conventional banks.

 

Objective of micro financing companies and NBFC:

  • Unemployed or low-income individuals should not be deprived of the opportunity to start their own business.
  • However, these individuals likely don’t qualify for a standard bank loan.
  • The end goal of microfinance is to have its users to outgrow these smaller loans and become ready for a traditional bank loan.

 

Advantages:

  • Microfinance is a financial service that offers loans,  to entrepreneurs and small business owners who don’t have access to traditional sources of capital, like banks or investors.
  • Individuals who usually lack the credit or resources to secure a loan and are unlikely to get approval from traditional banks.
  • Consumers who are seeking small-denomination loans do benefit greatly by microfinance greatly.

 

Other alternatives include grants , initial coin offerings , incubation and accelerators. Funding for startups is available in all sorts of forms but  an entrepreneur must be wise to consider and evaluate all forms of capital available for each stage of the business. As the company grows and evolves, different forms of capital make more sense and for that stage – moving from simple credit card debt and personal savings to more complicated sources like angel investors and Crowd funding.

Financial technology

Introduction

“Financial technology” or “FinTech” refers to the use of technology to deliver financial solutions. The term originated during early 1990s. However, the sector has attracted a lot of attention of regulators, industry participants and consumers alike. One major part of Fintech is Regulatory Framework within which all transactions and other exchanges can happen fluently, unrestrictedly but yet securely. Fintech in current dimension is very much Data Driven. It majorly constitutes APIs and is moving towards employment of Artificial Intelligence.

Fintech 1.0

Fintech 1.0 refers to the emergence of technology aimed at digitizing the customer experience and moving services online. Early focus was on online trading and lending, as well as on payments systems. The technology was largely driven by then newly started fintech companies , with little participation by financial institutions . As a result, while these initial technologies brought considerable attention and money , the applications remained relatively simple and were largely limited to improving existing types of transactions. The laying of the transatlantic telegraph cable in 1866 provided the basic and necessary infrastructure for the period of strong financial globalization from 1866 to 1913.

Firstly, FinTech is not an inherently new development for the financial services industry. Indeed, the introduction of the telegraph in 1838 and the laying of the first successful transatlantic cable in 1869 provided the fundamental infrastructure for the first major period of financial globalization in the late 19th century. This period is usually seen as running from 1870, with the laying of the transmission cable and other similar connections, to the onset of the First World War. The introduction of the Automatic Teller Machine (ATM) in 1967 marks the commencement of the modern evolution of today’s FinTech revolution. Fintech 1.0: From analogue to digital From their earliest stages, finance and technology have been interlinked and mutually Reinforcing . Finance originated in the state administrative systems that were necessary to transition from hunter- gatherer groups to settled agricultural states. Money is a technology evidencing the facilitation of transaction , and the emergence of early calculation technologies like the abacus facilitated these financial transactions.

Fintech 2.0

In 1970s, BARCLAYS deployed first AUTOMATED TELLER MACHINE (ATM) on JUNE 27, 1967 in ENFIELD, NORTH LONDON .In the same decade, automated clearing houses establishmed in United States and United Kingdom. The Inter-Bank Computer Bureau was established in the UK in 1968, forming the basis of today’s Bankers’ Automated Clearing Services. The US Clearing House Interbank Payments System was established in 1970, and Fedwire became an electronic system in the early 1970s.

The years 1981-82 saw the rise of bank mainframe computers and more sophisticated data and record keeping systems. Michael Bloomberg founded Bloomberg on October 01, 1981 which is privately held financial, software, data and Media Company headquartered in midtown Manhattan, New York City.

The stock market crash, ‘Black Monday’ was a clear indicator that global markets were technologically interlinked. The reaction led to the introduction of ‘circuit breakers’ to control the speed of price changes, and led securities regulators worldwide to create mechanisms to support cooperation. In 1999, the internet and e-commerce business models flourished. 2008 was the turning point in the history of fintech due to the financial crisis.

Fintech 3.0

The primary need for this phase arose due to the implications of the global financial crisis due to:

  1. The deterioration of consumer faith in the banking sector due to predatory lending standards and discriminatory lending practices that were not meeting consumer policy protocols.
  1. The financial crisis spiraled into a global economic crisis that created massive unemployment, as people were fired from within the financial sector and those who remained were compensated lesser for their skilled work, thereby deteriorating the working standards.
  1. The prospect of Fintech 3.0 also creates a potential use of new age understanding of financial markets so as to redefine and possibly evolve a dwindling financial market that exists with a financial crisis hangover in status quo.

Implications of Fintech 3.0

The primary implication of this phase has a concern of who has the prowess of an application of technology along with how the timeline for implementation can be sped up. These concerns have largely seen Fintech 3.0 be placed in a more Developed geographic setting, wherein the key infrastructural elements are:

  • Mobiles: Mobile penetration in the developing as well as developed countries ranges from 50-200%
  • Start-ups: The advent of financial start-ups contributes to acumen and knowledge changes that are leading to further innovative infrastructural possibilities.
  • Artificial intelligence: Spending on AI globally, is expected to reach USD19.1billion, of which the banking sector will account for 17 per cent.
  • Open Banking: Banks which were traditionally confined to closed ecosystems are now allowing third parties to access data in real-time through open banking standards.

These infrastructural elements are rapidly dominating the market and are effectively catalyzing the proliferation of digital landscapes, with possible inclusion of Blockchain as another infrastructural measure.

FinTech is comprising of five major components

  • Finance and Investment: There is new age focus from investors, consumers and regulators on innovating financial solutions based on peer-2-peer transactions and also crowdfunding, venture capitalism, private equity, public offerings, etc. FinTech has been largely involved in AI, which can include robo-advisory, etc.
  • Financial Operations and Risk Management: Operations and risk management have largely been responsible for the risk assessment and investment protocol followed by financial institutions to manage risks and maximise profits. Financial theory and quantifying techniques have changed and moved to a more Value at Risk based form which creates scope to grow for financial markets.
  • Payments and Infrastructure: The primary infrastructural additions with smartphones, AI, open banking and potentially block chain have been cause for regulatory and now consumer and investment attention to fintech. The advent of digitized international payment systems and even digitization in domestic sphere in countries such as India implementing the JAM, i.e. Jan Dhan-Aadhar-Mobile scheme have also created financial mobility and encouraged innovation for financial solutions.
  • Data Security and Monetization: The advent of financial data security has garnered much more relevance post the financial crisis of 2008, as issues of hacking, espionage, making it a national issue.
  • User Interface: This will continue to be a major focus of traditional financial services and non-traditional FinTech developments. It is an area of direct contestation for both established and new IT and telecommunications firms with traditional financial services firms; and, there is a likelihood that it is developing countries where factors increasingly combine to support the next phase of FinTech evolution. This User interface shows maximum potential for competition with the traditional financial sector, as only a few tech companies can leverage off their existent large customer bases to create and implement new financial products and services.

David M Brear, Partner Think Differently Group

Technological innovations will be the heart and blood of the banking industry for many years to come and if big banks do not make the most of it, the new players from FinTech and large technology companies surely will.”