BluSmart lessons: Investors must look beyond high-growth stories

So, whether you’re a direct investor looking to identify new investment themes, or participate in alternative investment funds (AIF) investing in startups, or simply hope to invest in future initial public offerings (IPO), the BluSmart case is a timely wake-up call.

Why should individual investors care?

Startups are increasingly part of the broader investment ecosystem. Venture capital funds, private equity-backed debt instruments, and AIFs sometimes have exposure to fast-growing but lightly regulated ventures. In a few years, these startups could tap public markets through their IPOs and ordinary investors may find themselves deciding whether or not to buy into such stories.

If you are planning to invest directly in emerging companies, themes or sectors, you need to ask hard questions. 

Revenue recognition risks: Inflated or aggressive revenue booking can artificially boost valuations, masking deeper operational weaknesses. Such practices tend to be more common when the company is planning an IPO and is seeking higher valuations.

Opaque related-party dealings: The lack of disclosure around financial transactions with connected entities can lead to misuse of investor funds.

ESG misuse: While “green” labels attract impact-focused investors, without strict verification, environmental, social, and governance (ESG) claims can be more marketing than substance.

Examining sustainability tags

The BluSmart episode also shines a light on the emerging green economy.
While the ESG investment theme is one of the hottest global trends, individual investors must carry out multiple checks.

1. Is the company’s green promise backed by real financial strength?
2. Are the ESG parameters separately audited?
3. Does the company’s governance inspire long-term trust?

Investors betting heavily on climate, electric vehicles, or sustainability funds must realise that not every green-labelled company will automatically translate into green returns.

If you plan to invest in sustainability-focused startups directly or through other investment vehicles such as AIFs, you need to do the following.

Check how the fund manager defines and evaluates ESG companies.

Check if the funds you invest in have clear governance frameworks for evaluating startup exposure.

Understand regulatory risk

Know that regulatory probes, while unsettling, are healthy signs of market maturity.

Be wary of investing heavily in sectors where regulations are still catching up with innovation.

Diversify smartly

Avoid over-concentration in emerging sectors like EVs or green startups, however promising they seem.

Maintain a balanced portfolio with exposure across mature businesses, debt, listed equities (direct or through mutual funds) and emerging ventures.

Chetna Rath is an assistant professor at the Xavier Institute of Management, Bhubaneswar.