If you’ve read anything on the internet since the early 90’s you may have understood that there is some money to be made in early stage tech investing. Above are a few companies that have made it, but there are literally thousands of early stage tech startups out there looking for investment dollars to help them scale.
Here are 8 reasons why investing in early stage tech startups is a great idea:
1.) HIGH RISK, HIGH RETURN
Investing is inherently risky, but fortune favors the brave. If you’re looking for an opportunity to invest in an industry that can grow exponentially on a quarterly basis, look no further!
2.) IMPACT YOUR INVESTMENT
Are you a superhero developer? Have you written a few books on marketing strategies? Do you already fund an accounting firm?
These are all amazing skills that Founders can leverage besides the capital. Capital Investment is the lifeblood of startup world, but it’s also highly important to add further value to ensure your startup investment is a successful one.
3.) ADD MORE THAN JUST CASH
You can be a faithful ally as well as a angel investors at the same time. Unlike a companies such as Ford or Bank Of America, your investment into their stock will not give you any access to impact their company.
Open doors, connect to potential employees and introduce possible customers. Every new dollar the startup generates, increased the value of your investment.
No other industry can scale as fast as early stage tech startups. Most often you will hear a company’s revenue model called SaaS: Software as a Service. This is also known as a seat based model.
The larger a company is, or the more of said service they utilize, the more money that company will generate. Therefore an early stage tech startup can build something once, and generate revenue from it forever.
5.) SET THE TERMS
Whether you are leading an investment or you are syndicating with other investors, you are the one with the money; and therefore the one with the power.
Startups may say they are interested in raising capital at a 10 million dollar pre-money valuation, therefor are willing to give you 10% of their company for 1 million dollars. If you don’t feel like that number is reasonable, you can negotiate or set terms at a 5 million dollar pre-money valuation. Therefor for the same 1 million dollars, you would receive 20% of their company.
6.) DON’T INVEST ALONE
Investment Groups, Angel Groups, Venture Capital Firms and everything in between are organizations that pool capital and profess in the ability to select deals the best.
When an early stage tech startup asks for $500,000, don’t let all of that responsibility fall on you. If you want to invest 10% of that round for $50,000 that’s perfectly fine. Average startups will accept investors as small as $25,000.
Do not feel that you have to fill out an entire round yourself.
7.) SWEET, SWEET MARGINS
Server space has grown to essentially minimal costs, growth opportunities are boundless with smartphones and multiple devices per person, and boy would you look at those margins.
The average tech company has between 60%-90% margins on their services sold. What could be sweeter?
8.) 10X, 20X, 50X, 500X RETURNS
The final and possibly most important reason to invest in early stage tech startups is the return multiple.
Take Uber for example, where Travis Kalanick invested $200,000 in 2009. Since then, Uber has raised upwards of 10 billion dollars. What’s that return multiple? Only Travis knows, but I’m fairly positive he is pleased.
When considering investment alternatives, there is no comparison. Early Stage Tech Startup Investments are high risk high return, but you can personally impact the fate of your investment.
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