← Writing / India Markets
The question I get more often now than I did five years ago is some version of: how do I invest in startups? The your broker story, the Nykaa IPO, Zomato, the Oyo arc, these have made startup investing feel like something an ordinary investor should be doing. The reality is messier and the access is narrower than people imagine.
I’ve spent years at Rainmatter, which is your broker’s fintech fund. We invest in early-stage companies in financial inclusion, fintech, and adjacent spaces. I’ve seen what startup investing actually looks like from the inside, the ones that quietly die, the ones that slowly find their footing, the occasional one that breaks through. The picture is very different from the highlight reel that reaches you through your Twitter feed.
What the Regulatory Landscape Looks Like Now
SEBI has been working on frameworks to allow retail investors some exposure to private markets, but with guardrails. The most relevant development is the accredited investor framework, which SEBI introduced with the idea that investors who meet certain financial thresholds can access alternative investment products not available to the general public.
The thresholds are meaningful: a net worth of at least ₹5 crore, or an annual income of at least ₹50 lakh, or a combination. This is intentional. SEBI’s logic is that investors at this financial level can absorb illiquidity and loss without it derailing their financial lives. Whether those thresholds are calibrated correctly is a separate debate, but they do signal that direct startup investing is not a retail product in the conventional sense.
Below that threshold, retail investors can still access startup exposure indirectly through SEBI-registered Category I or Category II Alternative Investment Funds (AIFs) that pool capital from multiple investors. The minimum ticket size for most AIFs is ₹1 crore, though some early-stage focused funds have started at lower entry points.
The Real Characteristics of Startup Investing
Let me be specific about what you’re actually signing up for.
First, illiquidity. When you invest in a startup, directly or through a fund, your money is locked. Not for months. For years. A typical early-stage fund has a 7 to 10 year lifespan. The first few years go into deploying capital. The middle years are about portfolio companies trying to grow. The exit years, when the fund tries to return money through IPOs or acquisitions, often get extended. When Rainmatter makes an investment, we’re thinking on a 5 to 7 year horizon at minimum. There’s no secondary market button you can press if you need the money in 18 months.
Second, failure rates. Most startups fail. This isn’t pessimism, it’s the empirical reality that early-stage venture investing is built around. A successful fund might have 2 or 3 portfolio companies that return significant multiples, while 5 or 6 return little, and another 3 or 4 fail entirely. The math works if you’re a professional investor managing a diversified portfolio of 20+ companies with deep due diligence capabilities. It doesn’t work if you put your savings into two startups because they seemed promising.
Third, valuation opacity. A publicly listed stock has a market price updated every second. A startup’s valuation is whatever someone agreed to pay in the last funding round, which may have been 18 months ago, at a different market environment, with different information. Between rounds, you have no reliable way to know what your stake is worth. When markets tighten and later rounds don’t materialise, paper valuations from earlier rounds become misleading quickly.
How Rainmatter Thinks About It
I can share how we approach it at Rainmatter because it’s public knowledge and it’s relevant context. We invest in companies that are building toward financial inclusion, health, and sustainability, areas where we have a thesis and where your broker’s customer base and infrastructure might create a genuine edge for portfolio companies.
Our cheques are small relative to the company’s capital requirements. We’re patient. We don’t push for fast exits. We’re not managing a fund on a 10-year clock with LP pressure to return capital. That structure lets us be genuinely long-term in a way most traditional VC funds cannot.
But even with that structure, most investments don’t work out the way you’d hope. The companies that do well take longer than expected. The ones that fail often fail for reasons you couldn’t have anticipated at the time of investment, a regulatory shift, a market that didn’t develop on schedule, a founding team that couldn’t hold together. This is the nature of the asset class, not a reflection of analytical failure.
This connects to something I’ve written about in farming and money, the idea that some investments need tending over years and the outcome is genuinely uncertain regardless of effort. Startup investing has that quality in abundance.
The AIF Route: Pooled Capital With Some Structure
If you want startup exposure without picking individual companies, SEBI-registered AIF funds are the more structured path. Category I AIFs (which include venture capital funds) raise money from investors, deploy it across a portfolio of early-stage companies, and return capital as exits happen.
The advantages over direct investing: professional due diligence, diversification across multiple companies, a fund manager accountable to investors, and some regulatory oversight. The disadvantages: fees (typically a 2 percent management fee plus 20 percent carry on profits), a minimum ₹1 crore commitment in most cases, and the same illiquidity you’d face in direct investing.
Some newer platforms have tried to lower the minimum by pooling retail investors into special purpose vehicles (SPVs) that then invest in specific companies. These are worth scrutinising carefully, the regulatory clarity around some of these structures is still evolving, and you want to be sure the platform itself is properly registered and that your legal rights as an investor are clearly defined.
The Honest Assessment for Most Retail Investors
For the vast majority of investors, including most people who are genuinely sophisticated about public markets, direct startup investing is not the right move. The illiquidity, failure rates, and valuation opacity create a risk profile that doesn’t fit a personal financial plan the way equity and debt do.
The exception is someone who has their core financial plan fully sorted, adequate emergency fund, life and health insurance, a diversified public market portfolio, retirement corpus on track, and who has money they can genuinely set aside for a 7 to 10 year horizon, with full acceptance that it might return very little. If that’s you, a small allocation to a well-managed AIF from a team with a verifiable track record could be interesting.
What I’d caution against is the FOMO-driven version of this, investing in startups because you saw someone’s portfolio on LinkedIn or because a startup you use in daily life is raising a round. That’s not a thesis. And as I’ve noted before, investment decisions driven by what others appear to be doing tend not to end well.
Questions Worth Asking Before You Write a Cheque
If you’re evaluating a startup investment opportunity, through a platform, a fund, or directly, here are the questions that separate a genuine opportunity from noise. What is the fund manager’s track record in this specific asset class? Not what they’ve done in public markets, but in early-stage private companies? What is the fund’s actual investment thesis, not marketing language? How are fees structured and when do they apply? What is the expected timeline for capital to be returned? What rights do you have as an investor if the fund manager makes decisions you disagree with?
If the answers are vague or if the pitch focuses primarily on the upside without substantive discussion of risks, that tells you something important about the platform’s orientation toward investors.
Practical takeaway: startup investing is a genuine asset class with legitimate returns, but it requires a 7 to 10 year horizon, high loss tolerance, and a financial foundation that doesn’t depend on this money. For most retail investors, a simple equity index fund delivers better risk-adjusted returns with far more liquidity. If you want exposure, start with a SEBI-registered AIF from a manager with a verifiable track record, treat it as a small slice of your overall portfolio, and be mentally prepared for a long wait.
This post is for educational purposes only. It is not financial advice. Mohit Mehra is not a SEBI registered investment advisor. Please consult a qualified financial advisor before making investment decisions.