Becoming A Tech Investor of the Future: How Do We Manage Large Risks?
The development of technology and the changing needs in our lives are closely related. The emergence of different demands and needs makes it necessary for more investments to be made in technological developments. Investors are trying different methods to turn human-oriented ideas into practice. Within this system, technology investors and entrepreneurs are the main providers of development. Technology investors provide financial support for the implementation of projects related to various topics. Risk investors, who are a source of funding for the implementation of technology ideas, include various stakeholders within their structure. Therefore, they are quite different from the behavior of investors referred to as angel investors. In addition, risk investors expect higher return rates from their technology investments than angel investors do.
Future technology investors will be venture capitalists. These investors possess superior skills in discovering and analyzing companies that are worth investing in. However, it is also important to note at what stage the investment is made, the communication with other investors, the structure of the investor and their performance history. When we look at the most successful technology investors, we see that they are venture capitalists. These individuals see making investments with good risk management as a fundamental goal. But when we look at angel investors, I also think that they have achieved significant successes. Angel investors expect high returns from high-risk investments by investing in business models in the early stages. By effectively communicating with entrepreneurs and investors, they can control risks.
What Criteria Should Investors Pay Attention To?
Technology investors should be aware that they are making investments with a certain level of risk. However, the risks taken can accelerate the development and return process of the investment. For this reason, it can be said that all technology investments carry risk, but this risk also holds a significant potential. The level of risk in technology investments can vary depending on factors such as the services offered by the companies, market size, or strategies. Additionally, an investor should have a good understanding of the technology start-ups and strategies. This allows investors to have a clearer idea of which technological field to focus on. Therefore, a technology investor can determine their direction by paying attention to different criteria. Also, a technology investor should be familiar with alternative investment methods. There are significant differences between venture capital, angel investment, and independent investment. You can create your investment style by determining how much risk you will take. A technology investor can shape their investments by paying attention to the following criteria:
A technology investor directs their investments by paying attention to the market size of the start-ups. In particular, the development potential and the entrepreneurial team of the invested company should be evaluated. The market counterparts of the products and services presented with technology should be analyzed. The impact and potential of technological start-ups on the market is an important criterion in directing the investment. Having the desired level of market size will provide more clear information for managing the risk.
Market Entry Strategy
A technological development can be successful with the appropriate strategy. Therefore, attention should be paid to the market entry strategy of the technology company to be invested in. Each strategy has a specific target audience and customer potential. Therefore, you can direct your technology investments towards a large target audience. Among the market entry strategies of technology companies, there are effective methods such as direct export contracted production and direct investment. Technology startups that will enter the market with these methods will generally succeed.
Technology investments should be directed towards areas with high scaling potential. As the scaling potential increases, the risk also decreases significantly. To determine scaling potential, attention should be paid to factors such as the technology start-up having a well-formed business model, and a strong team. In a company with high scaling potential, the demand and data numbers will increase, and the system can grow. Therefore, a technology investor can direct their investments by paying attention to scaling potential.
Feasibility and Timing
A technology startup makes investments in a suitable time and location, according to the needs of the market. Therefore, an investor should also examine that technology companies pay attention to timing and location. Technology investments made with inappropriate timing can result in failure. There are many examples of this situation.
Risk Analysis in Technology Investment
Future technology investors should have the potential to analyze and manage risks. When directing investments, attention should be paid to different points and you should ask yourself some questions. When analyzing risks, a technology investor should pay attention to the comprehensibility of technology products and services. Services should be understandable by customers and have a return. Also, the technological start-up should have a high competitive power. However, if the technology start-up is using financing transactions not to expand the business but to pay off debt, it would be wise to be careful. In addition, the situation of the company having a fictional business model and assuming a fictional market segment should also be considered.
The future technology investor should have fully answered the questions that will guide himself. Examples of these questions can be:
- How much investment can I make for this technology startup?
- What could be the potential loss from this investment?
- What will be my exit strategy from this technology investment opportunity?
- Are there any other institutions or people who see this investment as logical?
- How much risk do the resources of the technology startup carry?
- Is the management team of the technology startup reliable?
- Is the market of the technology startup showing growth trend? What is the accessibility of the market?
- Does the startup have advantages in terms of operational processes and strategic positioning?
- Are the revenue and profit models of the startup sustainable?
As a technology investor, I make sure to not make investments without answering these questions. The questions I’ve mentioned show the general structure and reliability of the company. An investor who has information about these topics can control risk more easily. Especially, attention should be paid to the management, operation, customer audience, and strategic characteristics of the company to keep the big risks under control.
Risk Management Practices
Risk management practices are generally one of the operating procedures found in large group companies. However, many small companies do not have corporate risk management. But corporate risk management is essential for institutions to exist, to preserve their values and to create new values. Many companies of different scales generally focus on financial risks. Financial risks are one of the priority issues for the existence of companies and institutions. However, only financial risk management is not sufficient for the development of ventures and companies. The risk management systems of companies should be integrated with goals, management layers, culture, project, operation, and employees.
Many of the reasons for failure are attributed to financial factors. I believe this is an important aspect. However, the only reason for failure is not just financial problems but also problems and deficiencies in corporate management. The financial part of failure is generally the part of the iceberg that is visible to the eye. Therefore, a technology investor focused on the future should work with companies that have corporate risk management. A technology investor should also assess the risks of the start-up in which he or she is investing, in addition to assessing his or her own risks. In particular, companies that use a comprehensive approach in crisis and risk management should be preferred. The content of the approach includes a holistic perspective, interdisciplinary understanding and collaboration with stakeholders. In this way, a good management strategy can be determined against the crises and risks that a start-up may face. Due to these effects of the risk management system, the technology investor should pay attention to this issue and determine his or her path.
See you in the next post,