The start-up companies are gaining prominence at the expense of traditional trade houses who have been doing business for generations at the blink of an eye. The new business houses are establishing themselves with the investments of hundreds of crores of rupees. They don't even gain the profit in tune with the investment. People are baffled by this sort of phenomena. Traditional businessmen are stunned by the growth of start-up companies and online business houses.
To spend one crore rupees, one has to be at the mercy of the banks and that demands filing of applications and land loans to boot. And it needs to be assessed first whether one can get enough money to pay the interest to the bank with the investment one makes with the sum sanctioned by the bank. One needs to think at least 10 times to decide whether to go for a bank loan or not. In a situation like this, the start-up kids are talking in terms of investments of Rs 500 crore and Rs 10,00 crore.
My dear Big Brother...this is the capital of the new age. It has been variously described as venture capital, private equity and so on. That is, the money comes first and the business follows it. It is not the traditional mode of doing it by using the sum accumulated doing business for years. It is, literally, putting the horse before the cart. And it also eliminates the worry of repaying the bank loan.
Even though, this sort of capital used to come from abroad initially, now the richest businessmen in the country are also tossing their hats in the ring. As the chairman of his company, Ratan Tata may have earned a bit of money. That sort of private earning itself will be crores of rupees. Ratan Tata have invested that money into the companies began by the neophytes: Those names may not even be well-known-Snapdeal, OlaCabs, Urban Ladder...and in the company in Coimbatore that makes electric two-wheelers called Ampere Vehicles.
These businesses are not started with bank loans. Tell the idea and convince the investor how much returns you can make with the investment. That is all. The money will turn over. Most of these businesses are web-based. There are also brick-and-mortar retail ventures in gold and cloth.
It is possible to see a legitimate doubts of the readers of this. How can the investors ensure that they get back their money. What if the business ends up in loss..?
Those who are into venture capital (VC) business are ready to take that risk. That is why only tycoons such as Tata and the billionaires abroad have ventured into this sort of business. If the business for which they have invested is to flop, it should go belly up at the earliest. That is their line of thought. If it is a foreign VC, it will fetch funds worth thousands of crores of rupees. If the startup company is a success, it will be listed in the Stock Exchange. SEBI has liberalised clauses for them to come up with IPOs. The investors will get shares, in proportion their investments. They will sell this to make profit.
Those who are investing in private equity (PE) will first ensure that they get shares. They will also put forward several condition for doing business. The business will be run under the supervision of the investors. If somebody invests money in this way in 10 companies and eight of them flop, the rest of the two will be enough for them to reap profit. The game started by the westerners is now being played by the Indian tycoons too. VCs like Kanwal Rekhi have invested for companies in Silicon Valley and make profit.
Apart from the above mentioned ways, there are also benami business. The rate for those who do large scale corruption is said to be one suitcase. One suitcase in their parlance means 5cr - rupees five crore! It is said that five crore Rs 1000 notes can be fitted into a suitcase. If money comes like this, it needs to be invested somewhere.
This is a bumper lottery. The winner takes it all. The loser will resign to his fate.
Last Word
The local minstrels sing that India is about to see desi Amazon, desi Apple, desi Google and so on. It would have been enough if we can see a mustard seed comes in place of Apple and and a Gir forest instead of Amazon.
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