Investment in Tech startups are booming the global investment. As global countries are more focusing on its technological advancement and development. Tech startups, IPOs, and generating huge returns on a small investment are all the rage in the markets and media these days.
There are many stories of a small tech investment companies getting it bigger and better:
- Instagram , the social media app, sells its shares to Facebook for $1 billion.
- Nest, the smart home thermostat company, sells its stakes to Google for $3.2 billion.
- Oculus Rift, the virtual reality headset company, sells to Facebook for $2 billion.
The actual news behind these transactions is not only do the company founders end up making a nice chunk of alteration, but all of the investors that carried them to the acquisition point make out clearly as well.
As the startups begin taking on investors they have to give up equity or real ownership in the company in order to catch up that investor. No one is going to just give you money without getting anything in return .The initial founders stake might gradually dilute to one third or less when the company sells, but it is a fair trade. The stakeholders get to keep driving the idea that eventually nets a 33% (or less) payoff on a stack of money and the investors get a nice return for the extreme risk bearing they took along the path. Generally when these deals stuck the news everyone wants a piece of the action. But how do you really get started with investing in tech startups?
What is Tech investment?
Technology investments simply means investment in those sector which relates to production, research and development of Technological aspects. This sector revolves around the manufacturing of electronics, creation of software , or any other product relating to Information and Technology[IT]. This sector offers wide range of Tech tools and machines. Technology sector is often the most attractive and return generating destination in any economy. Diversified technology sector is not only creating employment and booming the economy but it also adds new value to the developing society. One of the best reason for investing in Technology sector is that It is globally linked and it has wide scope as compared to other instruments of investment.
Technology investment plays a major role in poverty alleviation, by up scaling the productive capacity of the economy and generating increased employment. A good investment climate provides variuos incentives for all firms such as micro, small, medium and large enterprises — to invest productively, create employment, expand and diversify new technologies that can serve to increase the productivity and maintain sustainability of other factors of production.
How to Invest in Tech Startups?
—Here are five super tips to enhance your skills by investing in technology startups:
As with any type of investing you need to have the mentality of diversifying your investments unless you plan to invest in tech startups full-time. Diversification in any field of investment is utmost important as it will lead to development of the productive capacity as well as profitability. There are many professional organizations that only invest in tech startups. The have the time, money, and expertise to risk putting a significant amount of money into one company.
You might not be able to immediately diversify due to funds availability, but the more you can put your eggs into multiple baskets rather than just one the better off you will be. Tech startups have a significant failure rate, so counting on the one company you invest in to be the big newsmaker is extremely risky.
2) Research the Team.
Most of the Experienced angel investors and venture capitalists will tell you to just focus on researching and handling the staff behind the company more than you do focusing on the company. A strong, intelligent, and capable team can react to market changes and survive without any hesitation. There is no requirement of change of company’s structural portfolio if human resource of company is capable enough to tackle the problems.
You want a team that is hungry and has a lot at stake in the venture. I would be doubtful to invest with a startup full of founders whose livelihood was not driving on the success of the idea analyzed. If they’ve got millions in their personal bank accounts and little to lose if they fail they won’t have the same passion and hunger to drive toward success.
3) Research the Idea.
After the successful completion of second step the team you got extensively need to research the idea. Attack the premise of the business from as many viepoints as you can. Again, the idea is not your primary focus but it is still very important. Think of the team as “Important Item A” and the idea as “Important Item B”. You have to have both.
Here are some questions to ask as you do your research:
- Is this a viable and feasible business?
- Is this something you can see droves of people using or is it a niche product?
- Would you use it yourself?
- How much would you pay for the product, service, or app?
- How much would the target customer pay for the product, service, or app?
- Does the product, service, or app provide true value?
4) Invest in What You Know.
Another idea is to invest in what you know accurately and precisely. I would never prefer to invest in a the startup of pharmaceutical company because I have zero knowledge of the auxiliaries of the business and industry. It will be more profitable if I invest in personal finance startups. I understand the industry, what consumers typically need and want, and so on.
Focusing on what you know can help you avoid getting into confusions and situations where founders are convincing you to invest based on technologies, terms, and business structure you have no method of validating.
5) Focus on Revenue.
Last but certainly not least is to focus on companies with revenue and incomes. Yes, there are still surviving firms with zero revenue that are plowing through pile of cash in order to build up a large enough user base that will eventually sell out for an huge valuation that nets you a nice return… like Instagram, facebook.
But those are the exceptions, not the code.
Remember, these are businesses. It’s only because they’ve got upgraded and latest technology and cool apps doesn’t negate the fact that they need revenue to pay for expenses and to net a profit.
Would you buy a restaurant that didn’t have any revenue?
Or a dry cleaner location? Of course not.
Revenue is a proof that the marketplace actually believes in the idea. A lack of revenue is a huge red sign for any company.
Why to invest in Technology Startups?
If someone speaks of creativity, progress, and inventions, we are most likely to think it’s referred to technology. It is a huge sector of the economy that is featured by rapid growth and constant changes. No other industry can boast of penetrating into other economic spheres so deeply and widely.
Technology has become an integral part of our life and nothing predicts that it will be different. Greater demand means more supply, and the latter implies that the industry will continue diversifying and growing.
Such upward propensity cannot go unnoticed by investors. In business growth means more income first of all and this is exactly what’s important. Generally, technology investing is open not only to extremely rich and effective people but also to everyone who is ready to allot some money for this purpose. There are lot of opportunities, both big and small, and finding one is not a problem at all. The main question is whether the risk is worth the award. In this article, we will speak about investment in technology startups as one of the most developing slot in technology.
As already said, the majority of startups need financial support to be launched. Almost any deal includes risks. What matters is how many threats and opportunities there are at all. Investing money in tech startups is always challenging but there are a lot of positive instances to remember about and a lot of people who do that.
Investment size. Tech startups usually require quite affordable sums of money to start. A chance to invest in them at the early stage can result in great profits and returns in the future in case of success. Compared to funding big tech companies together with hundreds of other investors, being one of a few shareholders in a startup for the same money is much better. Don’t you think so?
If you are an experienced investor, you know what it means. It makes clear that portfolio is diversified and that vision of company makes it important to generate return. It’s good to have various companies on your record including big players and small startups. Such an approach will help you balance potential risks and benefits from all deals.
Opportunity for quick growth
As a decree, tech startups are very innovative and progressive in nature as compared to other investments. They leverage technology and follow trends which means they can quickly grow, expand and adapt to conditions. If all goes fine, your investments can turn to profit quite fast and easy.
Returns on investment
There are many success stories of famous startups prove that investors can become instantly rich. Just think about ‘Airbnb’, ‘Uber’, ‘Snapchat’ and ‘Facebook’. If you have invested $1,000 in Airbnb in 2009 you would have received about $2 million in return now. Uber is considered one of the best and leading startup deals so far. The calculation is impressive and extraordinary. $1,000 of investment could have turned into $6 million for you. That shows the power of investing in Tech startups.
Some governments such as Indian government and US government actively support early stage investors providing them with the tax reliefs, rebate or subsidies. This can be called a mutually beneficial deal with the state as the technology sector, this influences the overall economy growth and you receive profits from funding a startup company and pay lower taxes for that.
Bigger sense of fulfillment
Supporting startups is obviously something different from investing in information technology stocks and bonds. For those who care about not only incomes but being socially useful, this is a great chance for those. New startups usually bring changes in both to business and life by introducing innovations, creativity, improved conditions, new jobs creation, etc. It gives the feeling of self-belonging to something bigger and experience of real value of your investment and yourself as an influencer as well as adviser.
Best Tech companies to invest in.
According to Forbes :
This technology massive excels at apprehend data through its online network of 2.1million active users per month, which should allow the company to flourish and diversify for years to come. Most businesses cannot outlast without exposure on Facebook, which also generates long-term sustainability and maintenance of company, and growth across the Facebook universe shows no sign of gradual slowing and decreasing.
We have second example of Amazon had continue to make incredible gains. As huge as it is now, it’s just been laying its foundation for the past 21 years. The company now has arm in nearly every portion of our lives (Web, media, smart home and now grocery too), and it will continue to give us more of what we want, faster. That will continue to be revealed in its share price. Fast moving consumer goods [FMCG’s] are their targeted products.
As a major cloud computing growth and expanded engine with a reasonable valuation, Microsoft is a top tech stock to buy for 2018. Salesforce and Azure, its cloud platform, is nearly doubling revenue year over year. The cloud business is growing fast as compared to other tech businesses, which is why it’s a great time to consider buying this stock.
- Snap, Inc.
I firmly believe that Snap will continue to dominate among masses of audience, and it has become a very eye catchy acquisition target for larger and bigger companies. It would be worth purchasing this stock just to see that where it goes in terms of acquisitions and additions.
I don’t think Tesla is going to slow or decrease its productivity any time. With the advent of its new electric semi-truck and super cars, along with the increase in production of the Model3, I think Tesla is going to continue to climb and scale the market at new heights. ‘Tesla’ Boring Company, which is testing and trailing the underground highway, it will also help Tesla a lot, as it is geared toward Tesla drivers.
- Weibo Corp.
Weibo Corporation, just one of China’s major social networking sites, is extraordinarily undervalued relative to its potentiality. The company should benefit and get advantage from the accelerated growth of the Chinese economy. Chinese e-commerce giant Alibaba, which already possesses over 33% of Weibo stock, can greatly boost its traffic by advertising as much as it wants on the social network.
Of course it’s not always easy to invest in Chinese companies, but this Chinese video game company is on the NYSE and shows incredible growth opportunities. The noted diversification and development of this company is analyzed since 2012.
Following questions must be kept in mind in order to get expected return on investment in Tech Startups:
- How good or bad is the entrenched interest fighting the tech company?
- Once you get past the hype, is it clear how the company in question can make a lot of money?
- Is the product/ service a fad or a real thing?
- Is the company an evolution of an existing activity or does it require people to do something entirely new?
- Why did the company go public?
- Who regulates them?
- Can they survive without government subsidies?