Unless you are as rich and knowledgeable as Zuckerberg and his ilk, you won’t want to invest in tech startups without a massive amount of due diligence. While many startups offer a lot of promise, only few ever live up to that promise. Here are some important tips to ensure you are making the right decisions.
Look out for a team with high value ideas
As an investor, you should be looking to invest in people and ideas instead of valuation models. Look for a management team that is good enough to deliver on the goals and visions of the company. The team you are looking to invest in must have complementary skills, as this ensures that the goals and objectives of the company have the best chance of being met. A good combination is a team that has a highly technical founder and another business savvy leader.
Look for a team that is transparent
A good investor should only be attracted to businesses that accurately address fears just as they address excitement. There must be transparency, especially when it comes to the question of risk. You should have a fear of losing money but untrustworthiness and character flaws are equally big concerns. If you are not comfortable with any of the characters exhibited by the team members, it is enough reason to look elsewhere.
Look at the promise
When you are looking for tech startups to invest in, you will come across dozens of offers. Your focus however should be on picking one that offers something revolutionary and time proof. For example, investing in a social networking platform right now is very risky as the business has to offer something entirely different from Facebook, Twitter and the like, to be able to bring in a decent ROI for you. On the other hand, investing in tech SME such as Videonations, a company that provides digital signage, presentation systems, audio visual technology etc., may be a better investment. This is because, the latter is in a niche that has plenty of upside potential, and with the continued boom of technology in today’s business world, the chances of making a profit on your investment are likely to be better.
The lesson here is to look for a leader in a growth sector.
Invest in a startup that has proved its worth
If you are looking at a service provision company, take a look at how many businesses they have serviced and the amount pulled in as income. If you are looking at other forms of tech startup, ask for crowdfunding reports. Crowdfunding is a good way for you to know how consumers see a startup. It is a very good filter that shows you what startup is filled with promise and which ones you should stay clear of. If the public has put in some money in the startup, this may signal that the company is worth some more research time.
You may be tempted to pursue several startups at once. This is a bad idea in most cases. Remember you have to do your fair share of due diligence and rushing through it is a sure way to get yourself burnt. With any investment portfolio you should diversify. Don’t weight your risk too much in the tech startup realm.
If you follow these tips you should be able to make a bigger impact with your investments, and get on the road to finding a good tech startup that can provide returns for years to come.