Now that you’ve decided to begin your investment journey, the next question is where.

Private and public markets are the 2 sectors that make up the total financial landscape of

investment.

Private companies are usually funded by institutional investors, whereas public companies

are traded by the general public on the stock market.

In the H1 of 2021, private equity investors of India raised $30 billion, with soaring sectors like

IT, finance, and healthcare contributing to the majority of investments.

The main theme of 2021 has been the rising interest of private companies in public listings.

Let’s understand these sectors in greater detail.

Private Sector and Startup Investments

Most companies start out their journey in the private market.

Think of Google. It was bootstrapped by Larry Page and Sergey Brin in 1998, pulling

together $1 million from friends, family, and other seed investors.

In 2004, they made their initial public offering (IPO).

Today, its valuation stands at $520 Billion, making it one of the giant companies in the world.

So, the private market includes fast growing companies that receive most of their

investments from venture capitalists, private equity firms, close loved ones, and high net

worth individuals.

Speaking of wealthy individuals, did you know who was one of the first seed investors of

Google?

Jeff Bezos, the richest person on the planet.

He admired Google’s customer-centric focus as its approach.

This is what accredited investors of this space do.They invest in ventures through the assessment of the startup’s vision, mission, approach,

and market.

In India, private sector companies face minimal guidelines and restrictions from governing

bodies like SEBI (Securities and Exchange Board of India), and they do not have to disclose

their financial information to the public.

Jeff Bezos $250,000 translated to $280 million at Google’s IPO.

Seeing the risk-reward ratio, startup investing is turning out to be a hot investment option for

many people.

But not everyone has $250K to invest, right?

This is why at Tyke we enable startup investing for as low as ₹5000/-

To sum up the private market in a single statement- these are high risk, high reward

investment areas offering an alternative investment class to people who want to diversify

their portfolio and have an appetite for risk.

The Public Market

“Don’t bother to bid on this shot in the dark IPO.”

When the public market listed Google in 2004, this statement of caution was published by

the BusinessWeek column at the time of its initial public offering.

Why?

Because nobody knew or trusted the future of search engines.

(Now, of course, it’s a different story).

But what’s worth considering is this – Google offering its shares to the public is an example of

what goes on in the public market.

Here, shares are sold to the general public who then engage in trading them on the stock

exchange.

The stock exchange is a centralized location where the investors can buy and sell ownership

of companies.

They’re a form of mainstream investments open to all kinds of investors, having easy access

and credit flow.Market fluctuations and speculations are common with these kinds of investments.

For maintaining accountability to public shareholders, SEBI heavily regulates the public

companies, disclosing their performance for everyone to see.

Now that we’re versed with both private and public sectors, it’s time to tackle the all

important question –

Startups vs Stocks – Which is Better?

Both private and public sectors come with their own share of risks. While public markets are

plagued with fluctuations, startups have a tremendous failure rate.

Here’s the short answer – it depends.

It depends on the market, the company’s growth, the investor’s risk appetite, and their

portfolio.

The long answer, on the other hand, requires the assessment of certain basic considerations

and differences between startups and public markets.

Liquidity

Public market investors are notorious for keeping a vigilant eye on the rise and crash of the

markets.

Every day, hundreds of investment experts advise people on buying or selling their shares

on the basis of the sector’s market performance.

Liquidity is exactly this – the ability to buy, sell, and exchange the listed share.

Startup investments are not liquid in nature, as it’s impossible to exit a private equity deal

before a certain time frame.

Liquidity of investments is the main distinction between these 2 markets.

Volatility

If you’re feeling discouraged about startup investments, think again.

Private, unlisted companies are not subject to the volatile moods of the market.They’re protected from the macro-level fluctuating market trends.

Public markets, on the other hand, consistently face the highs and lows of supply and

demand.

In a way, startup investments are passive in nature till the exit is reached.

They offer an alternative asset in diversifying your portfolio.

Dividends

If the startup you invested in, made a profit, chances are that it’ll never reach your pocket.

Young companies have a high requirement for self-sufficiency of finances.

All the profits made are typically reinvested back into the business.

The only capital gained by the investors, then, is through shares.

Public markets, on the other hand, could remunerate the investors annually through

dividends.

So, for example, if you have invested in Bajaj Autos, you could be rewarded with a high

dividend rate during economic booms.

These dividends can be in the form of either cash or shares, and they’re distributed to the

shareholders.

Unprecedented Events

Nobody saw the COVID 19 pandemic coming and extending for as long as it did.

It certainly made the market crash thereby causing many people to lose money.

In such a situation, the investors look for alternative asset classes to diversify their portfolios.

While the private startup space has been limited to sophisticated investors, emerging

technologies are making it possible even for the general public to diversify their portfolios

amongst startups.

Conclusion

Now investing in either startups or public sector companies one thing in common is they are

both businesses.

As an investor, the “better investment” depends on your risk appetite and the amount of

homework you have done before any investment.

If you are investing in a startup, as an investor you would want always that the company

goes public one day.

If you are investing in the stock market, you want the company to return dividends year on

year.

But one thing we can say for sure.

Inflation – 6%, Interest in a Savings Account – 3 to 4%.

Your money is dying in a savings account.

Put it to better use.