Technology startups open the doors to potentially high returns for investors. Many startups, however, go bust within the first few years of their inception. It is therefore important for investors to be able to notice any red flags when they present themselves. In this first instalment of this two-part series, we look at the first five of ten notable red flags that must be on your mind when assessing the potential of technology investments. Read on.
1. No team
The first thing you need to do is evaluate the team that is running the project. This is because management is one of the foremost reasons behind the failure of most startups. Don’t base your judgement on the quality of one member of the team or the founder, rather, consider the total sum of all the members of the management team. The only exception to this requirement is when you are considering technology investments in companies that have a huge economic niche advantages. In such instances, the company can possibly thrive even if it has less-than-capable management.
2. Unscalable idea
The best ideas are usually those that seek to capture the widest pool of customers, as opposed to one that only appeals to a narrow segment of the market. Is it a new technology or a small and marginal improvement to an already existing one. Technology investment projects such as Facebook and Google that appeal to everyone and anyone tend to be more attractive and enjoy better chances of success. Evaluate the idea behind the startup and make a decision on whether it is the best for you.
3. Lack of traction
If the company has built a Minimum Viable Product, check to see where it stands in terms of ‘Daily Active Users’. Millions of people could download the product but if they are only one-time users, the company faces a certain bleak future. Avoid such technology investment opportunities or, at least, proceed with caution. Even if everything seems fine, make sure the user-activity is not the result of some click-farm in Asia.
4. No ‘go-to-market’ strategy
Techies often run into the problem of focusing on developing their product and working on the final touches that they forget about their go-to-market strategy. In the absence of a go-to-market strategy, it becomes difficult to attain the proof of concept necessary to mobilize growth capital. Make sure that the team has someone working on product-marketing before investing in any technology investments projects.
5. Trust and integrity issues
If a business exhibits signs of deception such as fudging past financial records, withholding vital information, gross exaggeration of facts, and outright lies. Make sure to check out all the information presented in the pitch for its veracity. Stay away from technology investments whose pitches are fraught with lies, exaggerated claims, and inconsistencies as it spells trouble ahead.
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Fig Tree Capital Ventures offers a selection of cherry-picked technology investment opportunities to qualified investors. If you are looking for technology investments that allow you optimize your returns while minimizing risk, talk to an Investment Advisor today. You can also call or mail us to discuss your requirement and hear how we can help you realise your objectives. You can reach us at (866) 304 9194, (866) 300 2170 and (866) 894 7309.