Sergey Kartashov (SergejsKartasovs), the chief executive officer of Cyprus-based asset management company Generation Partners LTD, noted some of the important factors while choosing an IT startup to invest in. Many investors get lost into the ocean of IT startups as the number of startups appearing on the market has been increasing over time. Similarly, IT investments are also increasing rapidly. In 2020, the IT industry has witnessed substantial growth.
Sergey Kartashov (Sergejs Kartasovs), the chief executive officer of Cyprus-based asset management company Generation Partners LTD, noted some of the important factors while choosing an IT startup to invest in. Many investors get lost into the ocean of IT startups as the number of startups appearing on the market has been increasing over time. Similarly, IT investments are also increasing rapidly. In 2020, the IT industry has witnessed substantial growth.
The IT industry has the potential to give a huge return on a relatively smaller investment. For example, Mike Makkula invested $92000 in Apple in 1976. In return, he received more than 2000 times his initial investment after four years. He also became a 30% stakeholder in the company. After four years, he had more than $200 million for his $92000 investment. Rovio invested 100000 euros in Angry Birds. After a few years, Angry Birds generated more than 57 million euros for the company.
Important considerations while choosing a startup to invest in
There is a huge potential in the IT market to pay a huge return on investment. But in most of the cases, the investors do not receive the expected outcomes on their investments. According to the recent stats, only 15% of the IT projects generate favorable returns. Among these 15%, only a few projects generate consistent profits. Sergey Kartashov advised the investors to analyze a new project properly before investing in it. “When choosing a startup to invest in, it is necessary to assess a combination of factors,” said Generation Partners CEO.
To analyze a new project properly, you should look at the host country of the project, the income of the company in the recent year, the age of the company, and its donors. You should also look at the amount invested by the donors in the project. You should invest in useful and innovative projects. The innovation and problem-solving capability of a new product reduce competition. Moreover, they make the product expensive, according to Sergey Kartashov.
The investors should resort to diversification if they are going to invest in an unfinished product. Most of the new ideas just remain an idea in the field of IT startups. If a project does not have a solid business model, then you should not go for a huge investment in it. If you have a diversified portfolio, then the profit from productive products will cover the losses from unproductive products, according to CEO Generation Partners.
The already finished products have a much lower risk as compared to the unfinished products. Sergey Kartashov advised that you should go for finished products if you plan to invest more than $100000 in a project. The assessment of project management also reduces the risk and increases the chances of success. You should carefully analyze the leadership of a new project before investing in it. “A comprehensive analysis of the startup’s strengths and weaknesses allows us to predict with fairly higher accuracy,” expressed Generation Partners head. The fighting spirit of the management of a new project plays a crucial role in making it successful. A combined analysis of all of these factors decides whether a new project is viable to invest in or not.
Angel Investment is another popular scenario in the field of IT investment. The business angels have already developed worldwide organizations on the base of their IT startups. David Cheriton, a Stanford University Professor, invested $100,000 in Google in 1998. After a few years, he became a billionaire due to his investment. It is a classic example of a business angel.