If someone speaks of innovations, progress, and inventions, we are most likely to think it’s referred to technology. It is a huge sector of the economy that is characterized by rapid growth and constant changes. No other industry can boast of penetrating into other economic spheres so deeply.
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 presupposes that the industry will continue developing and growing.
Such upward tendency 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 influential people but also to everyone who is ready to allocate some money for this purpose. There are a 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’ll speak about investing in tech startups as one of the most developing niches in technology.
Current state of things
There are more than one million tech startups in the world. It’s quite difficult to name an exact number of them because they appear and die every day. The competition is fierce, the conditions are uncertain and the consumer demands are high. This makes them look for funding to be able to grow and become successful. Of course, not all of them need investments but the majority really do.
It is not difficult to guess that the greater part of all startups is located in the United States. According to the Startup Funding Trends report from Gust released at the end of 2016, the number of submitted funding apps reached almost 55% there. The other four leaders are India, France, Canada and the United Kingdom.
The report also tells about the stages startup companies get invested in. The lowest percentage (7.3%) belongs to applications in the Idea Stage, followed by the Revenue Stage with 9.9%. In addition, 40.9% of funding startups are in the Full Product Ready Stage while 42% of them receive funding being in development.
Let’s take a closer look at the United Kingdom, for example. Startups continue to be actively invested there. The Tech Nation Report 2016 says that the country holds a leading position in Europe with £28bn totally attracted since 2011. In comparison, another startup leader, France, has reached only £11bn so far. Already in the first quarter of 2017 tech companies raised £576.85m ($719.27m) in funding which is 142.8% more than it was recorded at the end of 2016. Negative changes are expected because of the announced Brexit but the Government says that the tech sector will be one of its major priorities after the UK leaves the European Union.
Indian startups saw a decrease in investing in 2016. They totally raised $4 billion last year compared to $9 billion in 2015.
Apart from the more or less stable top countries, there are also world regions where tech startups begin to emerge and develop quite actively. Latin America’s Brazil is a good example in this case. Despite its unstable political situation venture capitalists invest in local tech startups and see great potential there. A recently raised $200 million fund proves it without many words.
Africa was quite successful in 2016 too. 146 tech startups raised $129 million there which is 16.8% more than in 2015 totally invested in 125 companies. What is more promising is the fact that a great part of them originate from the countries not listed among continent leaders such as South Africa, Nigeria and Kenya.
So, if to look globally, the industry shows positive dynamics. This is one of the key signs to consider it as a potential field for investment.
Reasons to invest in tech startups
As already said, the majority of startups need financial support to be launched. Almost any deal includes risks. What matters is how many threats there are at all. Investing money is always challenging but there are a lot of positive moments to remember about and a lot of people who do that. So, what are the reasons to invest in tech startups?
Investment size
Tech startups usually require quite affordable sums of money to start. An opportunity to invest in them at the early stage can result in great profits 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?
Portfolio diversification
If you are an experienced investor, you know what it means. 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 rule, tech startups are very innovative and progressive. They leverage technology and follow trends which means they can quickly grow and adapt to conditions. If all goes fine, your investments can turn to profit quite fast.
Returns on investment
Success stories of famous startups prove that investors can become enormously rich. Just think about Airbnb, Uber, Dropbox or Facebook. If you invested $1,000 in Airbnb in 2009 you would have received about $2 million in return now. Uber is considered one of the best startup deals so far. The calculation is impressive. $1,000 of investment could have turned into $6 million for you. Not bad, right?
Of course, it might be difficult or impossible to find the next big startup that could return so much. But who said you should invest only in one? Try to aggregate income from a few deals.
Tax incentives
Some governments actively support early stage investors providing them with the tax break, rebate or deduction. This can be called a mutually beneficial deal with the state as the technology sector 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 something different from investing in information technology stocks. For those who care about not only incomes but being socially useful, this is a great opportunity. New startups usually bring changes both to business and life by introducing innovations, improved conditions, new jobs, etc. It gives the feeling of belonging to something bigger and experience of real value of your investment and yourself as an influencer and adviser.
Read full article on MLSDev blog.
