Some of the largest successful business start-ups in recent years have been technology companies. From the likes of Airbnb, Stripe, Uber, Peloton and more, technology is an exciting place to invest in with the potential to make huge profits. These technology companies entered the market, disrupted existing industries and showed that the business landscape is always changing. There are several things to consider before investing in new technologies so here is some useful information you should know.
Background Research
Thorough background research is a good way to reduce risk. Talk to the founders and understand their USP, how they plan to succeed and grow and what they need from you. If you are unfamiliar with the market in which the start-up company operates you will need to find out what competition might be out there and how the founders plan to stand out. Scalability is an essential part of any successful business plan so you should understand how the owners plan to grow without an excessive increase in costs.
USP And Business Strategy
Any new product or service, especially technology-based, has to be able to effectively differentiate
themselves in the market or fulfil a need that is not currently being met. Having a clear USP and excellent marketing strategy to get the product successfully to market is essential. One other important area to review is monetisation. How will the company generate money from the technology? Will the end user buy the technology, and subscribe to it or will the income come from in-technology advertising? Understanding this can give you an idea of expected returns both in income and time taken.
An Alternative Way To Invest In Technology
Rather than researching and investing in individual emerging businesses, you could look to invest in an Enterprise Investment Scheme or EIS. It is important to understand what an EIS is and the risks and benefits of investing. EIS was introduced by the government to fund early-stage companies to help them grow. To encourage investment there are tax benefits for the investors. An EIS is a great way to invest in new technology as well as diversify your portfolio. There are risks associated when investing in start-up companies and you should be fully aware of these risks before investing. Consider researching businesses such as Oxford Capital who work with investors to provide EIS opportunities.
The Possibility Of A Buyout
With any new business, there is always a chance of acquisition. There have been some notable technology buyouts in recent years. YouTube, the video-sharing platform, was bought by Google in 2006 for $1.65 billion.
Instagram, the photo-sharing social media platform, was acquired by Facebook in 2012 for $1 billion.
Depending on the business, some start-ups can attract the attention of global corporations. A conglomerate firm may want to acquire the business as they see it as a rival to their own business. Or, they recognise the innovation used by the founders and/ or product and want to use it in their own company. These are well-known examples of success and they demonstrate the potential for a huge return on investment when investing in technology.
It’s Not Just The Technology You Invest In
Investing in technology is an exciting area to invest in. Watching the product develop and eventually launch into the market is thrilling for all involved. However, you are not only investing in technology. You are also investing in the Company, which in turn creates new jobs. Which then grows the economy. There may be skills, contacts or knowledge you can offer the Company as well as making an investment. Having done thorough research before investing in up-and-coming technology companies is vital before making an investment.
In Summary
Reducing the impact of financial loss is sensible for all investments. One of the most effective ways of reducing risk is to spread your investments across a range of different opportunities. It can take several years to see a return on your initial investment, but if you pick a winner, the returns can be significant.
