Investing In Technology Startups – Top 4 Factors Investors Look Out For

Investing In Technology Startups – Top 4 Factors Investors Look Out For

Though small, Singapore has been at the top of the world in many ways be it tourism, technology, education and government etc. Singapore is known as a global financial hub partly due to its strategic location, therefore it is considered as one of the most competitive markets globally. Hence it is one of the most attractive markets to go to among investors and financiers around the world. 

Technology startups can produce outsized returns. Think Facebook or Atlassian and you get what we mean. Technology companies can scale quickly to an incredible size. The top five most valuable companies in the world are technology companies (Apple, Google, Amazon, Microsoft, Facebook).

Even without a mega hit, the best returns on tech investments are from private and not listed companies. Additionally, multiple research studies show that carefully selected and managed portfolios of angel investments for technology startups can produce an annual return of over 25% or more. Investment is technology startups has since become one of the preferred investment options for angel investors. 

Business angel groups are more common in Singapore than neighbouring countries, and various angel investor groups have formed in Singapore during recent years. The Singapore government also has programs that allow them to co-invest in start-ups, along with various tax incentives for angel investors.

These Singapore investment groups can be great for entrepreneurs who need to generate a second source of income for their business but do not necessarily need a business partner. These investment groups can help fund a business but leave the day-to-day operations of the business to the entrepreneur. 

Investors seek profitable market opportunities with a technology business that is based on a product or service. Many ideas and technologies but most are unable to meet the full scope of investment criteria from angel and venture capital investors, making it rare to find an outstanding opportunity for investment in technology startups.

These are the top 4 factors that investors consider when it comes to investing in technology startups:

1. A clear description of your solution 

Earlier on, we talked about how many ideas and technologies might exist but most are unable to meet the full scope of investment criteria for technology startups. Your solution must be a solution that addresses many common issues that consumers face, presenting a real need in the market. 

Thorough market research needs to be done via feedback, surveys and other methods to determine the target audience and buyer personas etc. This includes proof that consumers are willing to pay to solve their issue and evidence of how your solution can decrease their frustration or solve the issue. 

2. Potential for higher growth

Your solution needs to address a large or growing market opportunity and you clearly understand the target audience, customer segments and competitive landscape in your target market. Market opportunity is an important metric for estimating the long-term potential of your product or service. 

A market that is worth pursuing and offers an opportunity for non-linear growth, will be the apple of investors’ eyes. The market must be huge and durable enough over the long term, meaning that your product or service must meet real needs and not just a gimmick. 

Additionally, the market conditions must allow companies to accrete value to the entity much faster than they spend the entity’s resources like cash flow and equity. In an established market, that means growing faster than the overall market growth and taking the lion’s share. In a new market, that means educating and acquiring consumers for much less than the lifetime value of these consumers.

3. Financial return of investment (ROI)

It is important to develop a sound financial plan that demonstrates how your business will make money and some reasonable scenarios on when your investors will receive a cash return on their investment especially for technology startups. Naturally, this must be supported by the valuation and terms of the current investment round that the business is asking the investors to consider. 

Based on basic arithmetic, it is quite challenging for early stage investors to make the numbers work with a market less than $100M in total size. Therefore this is why early investors need to be able to credibly model a !0X return at the outset of every investment since so many companies fail. 

4. Experienced management team

Ensure that your team includes people who are industry experts or leaders, have a consumer focus and understand the specific sub-segments of your target market. Ideally, your management team should consist mostly of individuals who have prior experience in a technology startups. 

It is quite tough to train novices who do not have prior expertise in technology startups hence it is important to have experienced professionals having your back. Your team should reflect the characteristics of successful entrepreneurs – strong leadership skills, passion, creativity and agility in adapting to market changes. With a through and sound execution plan, the probability of success will be higher. 

In summary, all types of investors at all stages of the funding life-cycle seek similar characteristics in their investment opportunities. Early stage investors usually will accept more risk associated with market and consumer validation as well as the perceived execution skills of the management team whereas late stage investors will demand more evidence of market and consumer validation. 

Credibility is the key to success and your business should be entirely organized – clear structure and intellectual property etc, making it free of complications that could present challenges in securing investors for technology startups. We hope this information has been helpful to you and all the best in securing investors!

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