How To Strategise Timing For Investing In A Tech Startup

Not every company is going to be the next billion dollar show-stopper. But, good investments don’t always have to be tech giants for investors to make a solid return. How can you tell when it is too early to guess about a company’s success? How can you tell when it is the perfect opportunity, worth taking that risk? Watch this video and hear from the professionals about knowing when to make the right move, even if it isn’t a billion dollar guarantee.

Video Transcript:

Timing your investment – discussion

Ben (Alliance Software, CEO & Founder): I meet people and their view of the world is they’ve come up with a brilliant idea. Their idea is incredible. What should happen is someone should pay them a really good wage to sit for twelve months and turn that idea into a business. I’ve heard that but I’ve never seen it. I’ve never seen an investor investing in a tech startup who has said, yes, that is a brilliant idea and I’m going to pay you to turn that into a business. Have you ever seen that? Or is it really the case for the people in the room, you’ve got to get your business up and running before people are really going to take you seriously?

Niv (Peak Asset Management, Executive Director): Everyone has a great idea at the end of the day. The ability to take that idea, deliver on it, execute it and make it work; there is a lot of work that goes into it.

I have invested in a very early stage business, for example. One of them was ride sharing. I thought ride sharing was a fantastic idea because everyone is using public transport and vice versa. Then I thought, hang on a second, Uber has come into the market. They will just completely destroy that market. Delivery, Deliveroo and vice versa.

There are always good ideas but you need to know the founders. That is when you need the backing of management to take that idea and execute it, before we have the confidence to invest in that opportunity.

Ben: One observation that I have made. I think there are two kinds of businesses in the tech space.

There is the business that is going to change the world. If it becomes successful, it will make a massive impact and it will be global. You’re playing with low odds of success and incredibly massive pay-out opportunities. There are a couple in the room who have businesses that are exactly that.

Then there are what I call the Goldilocks businesses. They may never attract funding, but there are people who are in this room today and they have invested in the realm of $100,000 to $200,000 and they have built some processes that in a very particular niche market solve a particular piece of pain for a particular group of customers.

They will probably never get above 500 to 1000 customers, but their 500 to 1000 customers will pay them $2,000, $3,000, $5,000 per year. And I have seen some of these people go through incredible challenges in their world, but have this very profitable business that makes them many hundreds of thousands of dollars because they picked it at the level where no one was going to go after that market. They sold to that market and they really have been able to stitch it up.

I think it is an important thing to think about from a strategic perspective when investing in a tech startup. I look at it now and I like Goldilocks businesses. They’re small enough that I can put enough money behind them to make them work and they’re going to succeed. They’re probably never going to get to make the business at this level, unlike our next speaker who can very much make it to that level.

As you can see, there are many factors that make for a solid investment. Every startup is unique. The people involved, the early success and milestones achieved before raising capital are all signs to watch for. But, sometimes it is about seeing the benefit of a niche instead of huge margins or unlimited growth. Becoming an informed backer can mean solid returns even in small startups which are on the right path.

Do you need to understand more about raising capital in the tech startup sector, or are you a software company looking for the right investment advice? Come to us, maybe we can help! Give us a call today.