Investing In Up And Coming Technologies: What You Need To Know

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Jodie James, Freelancer

Putting money into new technologies is an exciting opportunity with the potential to yield strong profits. You help the economy grow and create jobs when you invest in an upcoming business. It’s not easy to hit a home run, but if you invest in a successful business, you may see returns anywhere from five to one hundred times your initial investment. However, performing adequate research on the company, market, competitive environment, and founding members is essential to reducing risk. Here’s what to know before investing in up-and-coming technologies. 

Background Research

Performing start up background research and clearly understanding the market in which the start up competes is a great way to reduce risks. Foreseeing the technology’s success will be easier with this information to hand. Make sure they have a scalable plan that will give you a return on your investment as it expands.

Start up companies need to be well-versed in the industry they want to penetrate to succeed. Those unfamiliar with the industry often make the mistake of trying to implement a tried-and-true business model in an exotic setting without fully understanding the risks and challenges of doing so. 

Most of these businesses fail because their founder lacked expertise and was attempting to learn the ropes as they went along. Investors should always ask the founders of a start up their USP and plan to achieve their desired goal.

Business Plan 

A thorough and well-developed company strategy is the most important thing to know about investing in new technologies. Understand the start ups’ plans and assess that they’re not flying blindly into the future and are at least somewhat grounded in reality on the road to industry success. Get assurance from the technologies by having a clear idea of their future potential and plans to achieve their goals. Financial forecasts, marketing strategies, and a thorough analysis of their target audience are all essential components of the winning business plan you need to know. 

EIS Schemes 

The best way to reduce the impact of financial loss is to distribute your money among a wide range of investment opportunities. Doing so will increase the start up’s likelihood of success and reduce the risk of failure. It will also improve the odds of making a profit or attracting an acquisition bid from a competing business. The period between making this investment and starting to see a return is rather long. Those who are patient enough to wait eventually rise to the top of the business world.

It is essential to know what an EIS is and how you can cut down risks associated with investing in new technologies. The UK’s Enterprise Investment Scheme (EIS) facilitates the funding needs of smaller, riskier businesses. To encourage investment in high-risk companies, the UK government provides tax breaks to persons who buy stock in these companies under the Enterprise Investment Scheme.

An EIS fund can provide you with some diversity, often within a specific industry or geographical region. You may relax knowing that a trained expert is looking into your potential investments and deciding how to allocate your funds. However, you can lose money if some or all of the firms in your portfolio fail.

When investing in an EIS fund, you will have far less say and information about where your investment is being allocated. Assets in a managed portfolio are typically more costly than investing in a single business because of the value added by the fund manager.

Startup Income Strategy 

Money is usually the essential thing in investing-and-coming technologies. Understand the company’s long-term expansion plans to assess its prospective chances of success. The start up must be charging a fair price for its service. Companies without a clear route to monetisation are not worth investing in since they will eventually fail.

Unique Selling Proposition 

For up-and-coming technologies to succeed in the early phases of a new market, a product or service, they must first differentiate themselves from the competitors. Start ups copying a big brand’s product or service will end up unproductive and result in financial loss. Therefore, before investing in such businesses, discover their Unique Selling Proposition (USP) and identify how their product or service can significantly penetrate the market. 

Method Of Fund Usage 

If you invest in a company, you need to know exactly where your money is going and why. Test the entrepreneur’s vision more effectively if you have a firm grasp of what they want to do with your investment funds. Also, check the salary levels to determine how much the founder plans to pay themselves. Think about whether or not the start up’s fundraising goal is realistic and whether or not it will allow the firm to reach critical milestones on the path to profitability or further funding.

Legal Rights

Read the investment agreement, subscription agreement, term sheet, and other company legal documents. Learning the organisational structure and key players in the firm is the primary focus at this stage (directors, investors, advisors). Pay close attention to the start up’s agreement structure and the percentage of ownership you’ll receive in exchange for your investment amount. Investors need to be aware of the company’s structure and history and the ownership stake they will get relative to their financial contribution.