Investing in a tech startup.

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Starting up a new business is an exciting if sometimes nail biting time, and with new businesses springing up every day it’s a good time to be putting new ideas forward. The tech sector has grown enormously over the last decade or so, with entrepreneurs able to turn initial bright ideas into thriving businesses. After all, it wasn’t that long ago that two young, aspiring techies started what is now the biggest tech company in the world. Steve Jobs and Steve Wozniak created Apple Computers, and the rest is history!

Getting the startup right

There are many things fledgling business owners need to consider when coming up with an idea that will eventually become a successful business. Initially, they should ask themselves some key questions:

  • Are there enough resources to build a profitable business?
  • Has the owner got the right personality and drive to make it work?
  • Will partners or investors need to be brought in?
  • Is the market for the specific service or product big enough?
  • Who is going to buy it – what is the target market?

Preparing a business plan

It may seem strange but a business plan is not all about the money. Of course, it is essential to have a sound financial plan though, whether or not the business is looking for initial investment. A bank will demand information based on reasonable assumptions as well as a clearly set out strategy for the first few years.

Situations change, so a business plan should not be cast in stone but made to be flexible so it can react to changes, perhaps to the market, to a financial situation or to personnel issues. A good business plan will not just set down figures: it will examine every part of the planned operation so that it will be an efficient operation that has been thought through correctly.

Finance and investment

Every business owner wants to make money so the key is to work through the costs of setting up the business (startup costs for tech businesses can be very low depending on what it is), as well as for running it. Costs can be cut initially if the business is being run out of a room in someone’s home or a garage, but as a business builds it will need premises, not only to house new employees but to generate credibility for customers and suppliers.

It can be at this stage that investors may be needed; usually initial investment comes from the founder or founders of the business, and often friends and family will help towards the startup capital required.

 

Types of investment

 

Aside from the founders and friends and family, there are other options when looking for additional financing, either for working capital to expand employee numbers or money for major physical or software purchases.

 

The bank is often the first choice for many, and if the relationship is good then there is a good chance that it will provide support when required, especially if the business plan is developing as predicted.

 

Venture capital may be an option, where a professional investor managing an investment fund is looking for high potential returns on capital invested by, for example, pension funds, corporations and high net wealth individuals. Venture capitalists are usually looking at a relatively long-term investment and will assess the tech business’ potential for rapid growth.

 

Many companies specializing in investments also have clients who are investing to boost their retirement fund, or who want to get their money to grow quicker than it would if they put it into a simple savings account. These companies provide investment calculators that can help people with their savings plans to get them to where they would like to be when they retire. Some savers like to build a portfolio of higher and lower risk investments, and tech startups are often of interest due to their potential for high returns in a relatively short period of time.

Attracting investment

A new business won’t attract investment if no one knows about it. The savvy startup entrepreneur will have built in a comprehensive marketing plan into the business plan, allocating budgets for advertising in appropriate places and using PR to get the message across. A powerful tool now for getting known is through social media where word of mouth can develop into a viral that grabs attention.

If the product or service is good, if it can be portrayed as something different and valuable in its market, and if it’s going to make money, then investors will always be interested.

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