Investing in technology has always been commonplace as technology is generally perceived as advancement, and people want to be ahead of the crowd. Whether it be the Romans looking to invest in aquaducts, the Victorians looking to invest in Brunel and his ilk or the dot.com bubble; there has never been a shortage of individuals looking to obtain a piece of the next big thing.
As technology investments are commonplace, the query is then how do you spot the technology in which to trust your money? My team and I are fortunate enough to have been involved in a number of successful tech investments, so below are my thoughts on what to look for and how to attempt to mitigate risk:
1) Be disruptive: Technologies which are successful are usually disruptive to an existing marketplace when launched. They will redefine the norm and bring a new approach. A prime example is in the mobile phone market. In 2005, BlackBerry accounted for more than 85 per cent of the UK business market and when the iPhone was initially launched the chief executive of BlackBerry manufacturer RIM declared it to be merely a fad and irrelevant to his company’s marketplace. Move forward 10 years and Apple sold more than 13m iPhones 6S in the first weekend on sale, where RIM expect to sell just 8m BlackBerry handsets in the whole of 2015. The iPhone disrupted the mobile phone market and, with the competition of Samsung, reduced the market share of traditional phone manufacturers to an absolute minority.
2) Identify multiple markets: Of course there will always be some technologies that are only appropriate to a specific market, but if possible you want the technology you are invested in to have multiple markets and therefore multiple opportunities to succeed.
3) Identify technology with margin: Unless you are purposefully being philanthropic, as an investor you need to make money. Therefore, you need to be sure that every unit sold will make money and be able to sustain a profitable margin. I see a number of companies where their business model is based solely on entering a market and undercutting the competition. If a new technology is truly new then price shouldn’t be a major factor and the disruptive nature of the technology should allow for market entry without having to be the cheapest on the market.
My general suggestion to anyone looking at investing in technology is to try to invest at the commercialisation stage. Investing early can bring great rewards but can also be extremely risky. However, by investing at the second funding stage you should be able to identify whether a company is post-revenue and beyond proof of concept, thus mitigating some risk.
Ian Warwick is managing director at Deepbridge Advisers.