If you’re an investor, you know that one of the best strategies out there for long-term returns is to look out for promising startups.
If you can invest in a company that is just getting started that ends up becoming a major player in their respective industry, then you will see the stock skyrocketing.
It can make for some massive, massive returns in the not too distant future and if you can figure out how to find these startups, that’s the first step.
These days, a lot of the startups with huge potential are technology based. Can you imagine if you invest in Apple before it got huge? You’d have no shortage of cash now.
Technology is advancing, but it’s also changing. And this means that some startups which seem promising, might not actually amount to much.
So, here are 5 questions to ask yourself before you make any investments.
1. Do I Actually Understand the Technology?
You wouldn’t normally need to fully understand the inner-workings of a business that you’re investing in, but for rising technologies it’s probably a good idea.
The problem that could arise sometimes is that a company will embellish their own tech and try to blind potential investors with science.
It could be something that seems very advanced and very useful to the untrained eye and an investor might not be able to notice any potential flaws.
So, if it’s technology you want to invest in, you should probably be willing to do some research on how the stuff actually works.
You’ll be investing with no historical basis to predict your returns, so you’ll have to rely on how much you trust the actual business.
It’s difficult to put your trust in technology if you don’t know at least the basics of its inner-workings.
You could easily fall into a sketchy investment if you don’t really know what you’re investing in.
2. Is it Better Than the Other Options?
This is in a similar vein to the last question about understanding what is offered by the technology that you’ve chosen to invest in.
There is going to be many different startup companies looking for people to fund their business and you obviously can’t invest in them all.
The unfortunate truth is that some of these companies will become successful, but a lot more will fail before they’ve even gotten off the ground.
And with technology becoming a more significant part of our lives with every passing year, many people are jumping on the bandwagon who don’t really know what they’re doing.
You don’t have to pick just one company to invest in, but you should be picking the ones with the most promise.
I’d suggest that you look into as many of the choices as you can and get a good idea of the tech offered by each of them before you invest.
Choosing the right stocks is a skill in itself in the investing world, and it’s even more important for companies that are yet to be established.
3. Are People Using it?
This is one of the most important things about these new, advanced technologies that people are trying to develop.
Is there actually a demand for it? It might seem like something that’s very clever and very unique, but is there actually people out there that want to use it?
This has been the death of several tech companies in the past that seemed so promising. They were dead on arrival because the demand for their product just wasn’t there.
There may not be much data on the actual company itself. If they’re a startup they may not even be in the process of selling yet.
If they are, then that’s great. You can find out how well the company is doing with customers whether it’s the public of businesses that they’re selling to.
And if not, you can still get a sense of the overall demand for it by finding out how well the companies that offer a similar technology are doing.
Again, don’t let yourself be blinded by what appears to be advanced science. It comes down to the money at the end of the day, a lot of your focus should be there.
4. Do I Trust the Company?
This one is a bit tough because as we’ve said a couple of times now, these new companies won’t have any investment history that you can research.
When you’re investing in a massive, established company, it’s much easier to get a sense of how they treat their investors and what their overall track record is.
You can’t really do that with a startup. It would be worth your time to contact the company and try and see what kind of people are working there.
A lot of these companies that are looking for funding would probably appreciate some communication with potential investors anyway so don’t feel like you’re overstepping.
Do this after you’ve researched the company and learned about the tech itself. Then you can figure out if they’re trying to manipulate you or sway you with false promises.
Of course, everyone will be trying to convince you to invest but you can take measures to weed out the liars and the schemers.
5. What Will My ROI Be?
You actually need to ask yourself this question before investing in anything. Technology or otherwise.
But it’s something that not many people do for some reason. Even though ROI, which stands for Return on Investment, is what investors stand to gain, people don’t think ahead.
In the case of a startup technology company, it’s hard to gauge this sort of thing because there hasn’t been a lot of people already investing in it.
There’s a couple of things to think about here: For one thing, you can ask yourself if it’s worth investing in something when you can’t be sure how it will work out.
On the other side of the coin, you could analyze the stock performance of other, similar technologies and how they progressed from startup.
Understanding the nature of rising stocks is always good and could give you an idea of what ROI you can expect. In this case, I think the former question is the more important one.
You are always running a bit of a risk when you invest in a new technology company, so the real question is whether or not you are okay with the possibility of a low ROI.
I think the general consensus that you’ve probably gotten from this list is that investing in rising technology is a risky game.
I’m not trying to put you off it or anything, but it’s definitely good to air on the side of caution. So do ask these questions before you invest and be prepared for a lot of deliberation.