Sergey Kartashov, the CEO of Generation Partners, talked about the ways to choose the IT startups worthy to invest in. Many investors get lost in the ocean of IT startups due to their wrong approaches. The intensity of the IT startups appearing on the market has increased substantially in recent times.
Sergey Kartashov, the CEO of Generation Partners, talked about the ways to choose the IT startups worthy to invest in. Many investors get lost in the ocean of IT startups due to their wrong approaches. The intensity of the IT startups appearing on the market has increased substantially in recent times. Similarly, the intensity of investment growth in IT startups also increased. The IT market has the potential to go with a distinctive feature of “low investment – high profit.” The market is full of examples when a small investment brought huge profits for the investors. The case of Rovio is one of the best examples in this regard. Rovio invested 100,000 euros in Angry Birds. A few years later, the company earned more than 57 million euros from the game. Mike Markkula, the first contributor to Apple, received a 30% stake of the company for his investment of $92000 in Apple in 1996.
Assess Various Factors before Investing in a Startup
The investors of an IT startup do not meet their expectations most of the time. According to the recent stats, only 15% of the startups have the potential to give a meaningful return on investment. Some of them can give consistent profits. A good investor always analyzes various factors about a startup before choosing it to invest in. Sergey Kartashov said, “The product itself, which the developers offer, should be innovative.” The innovation in a product increases its price by reducing potential competition. The CEO of Generation Partners highlighted some key factors related to investing in a startup to be analyzed by an investor before making an investment decision:
- The host country
- The age of the company
- The income of the company in the last year
- Other donors and their introduction
- The total amount of investments of donors
Resort to Diversification
Sergey Kartashov explained the importance of diversification in the field of investing in IT startups. The chances of success are quite low for an average project. An investor must have to invest a huge amount in an IT startup idea. This amount will be spent on organizing a workspace and paying the salaries of the developers. “When it comes to financing startups that do not have yet a finished product or a working business model, but only a rough business plan, it is worth resorting to diversification,” noted CEO Generation Partners. The large profit from the productive products compensates the losses from unproductive products if you diversify your investment portfolio.
Analyze the Strengths and Weaknesses of a Startup
Most of the investors consider finished products when the investment amount exceeds $100000. There is a lower risk in considering finished products as it requires funding only for the further development stages. Sergey Kartashov noted, “A comprehensive analysis of the startup’s strengths and weaknesses allows us to predict with fairly high accuracy how it will develop in the future.” An investor must have to analyze and assess the leadership skills of the startup managers, the business plan of the startup, and the development of the product. IT investments are risky and adventurous. Many startups turned into large corporations in the past. Facebook, Apple, and Google are the real examples in this regard. The startup that focuses on solving a particular problem through its product or service can get a huge success. The investors need to target such startups.