The pros and cons of investing in tech start-up

Tech start-ups tend to be an interesting area to look at for investors. With plenty of reasons why you could stumble upon the next unicorn or why things could go south from the get go, the big win, big loss option isn’t for everyone.

There are two areas to consider when preparing to invest in tech start-ups. One is the tech side and the other is the start-up side. As obvious as that might sound, thinking that it’s a good time to invest in start-ups doesn’t mean it’s a good time to invest in tech and visa-versa.

Start-up investing

When it comes to start-ups, the risk-reward factor is quite pronounced. While it may be an innovative, promising space that can see huge multipliers on your original investment if it is successful, the sad reality is that a vast majority of start-ups will end in failure.

Most venture capitalists who deal with start-ups will have a wide spread of investment across companies than a Private equity fund would. This means that there is a sizable margin for error amongst the companies but the investor will still be hoping to have at least one company do particularly well.

De-risking a portfolio that’s full of start-ups should be the number one priority. Investing in more might seem counterproductive but in reality the multipliers can be so high from start-ups that a fund can break even from just one success. 

It might sound like a profitable option to invest in start-ups, especially considering one smart investment out of ten could be enough to consider a fund a success but that is considering a huge success story after a long period of investment.

Tech start-up investing

While they might be looking like a good long term investment after reading the last section, the tech end of things can add some complication to the matter. 

Tech innovation and software development can be costly industries especially in the early stages. With the likelihood of burning through an already tight budget seeming like a certainty for most start-ups, software development is an industry that goes above and beyond. 

With projects that tend to take too long and go over budget frequently, before a product can even be gauged to be viable in the market, tech start-ups can be particularly risky.

This might seem like a massive drawback but if a company can use their funding wisely, work with experts in the area and get to the next stage efficiently, they could be a real success story - as tech is something that is becoming more and more important in our everyday lives. 

Tech is a relatively new sector, when compared to other major industries, which means that there is a lot of room for success for innovative solutions. If a tech start-up has a good vision, an ability to surpass competitors and the right backing from a good team and appropriate investment levels there is potential for success.

Conclusion

Not every tech company can be the next Google or Amazon. Most tech start-ups actually fail but that shouldn’t be the reason you dismiss investing in them, as there is a risk with all types of investments.

With plenty of due diligence you could be in with a shot of figuring out if a company has what it takes to give you a return on your investment. No investment will ever be certain of success but by diversifying your portfolio with exciting prospects, you can derisk your portfolio and still see big returns on your original investment.

At Zoosh we are Venture Builders and we even go beyond this. With a strong background in raising funds and creating digital products and services, we use our expertise to put innovative ideas with top entrepreneurs and help them create a strong cloud tech product and services off the bat. By ensuring that there’s no waste in time and resources we believe that we’ve streamlined the startup process.

Contact us today if you are looking to invest in the next tech start-up.