Despite the fact that during the first half of 2014, more than 400 million dollars were spent only on mergers and acquisitions of technology companies, many investors still remember the dot-com crisis during 2000 and beyond. Given this situation, the question is, should we invest in technology companies or not?
The main argument for experts and large investors is that it is an industry in continuous evolution, and technology is increasingly overlapping with sectors such as energy or automotive. It is a fact that more and more companies need to have a computer system, both for their systems of mass production and for the production of employees at the individual level, and this trend will not stop growing as the year’s pass.
The return also comes into play when experts talk about investment in technology startups. Although the crisis of 2000 is still present, investment in technology companies remains more secure than the shifting financial products offered by certain banking companies. In this way, the risk-return binomial is more attractive in startups although, like any investment, it is not without risks.
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The technological sector is to continuous growth, and many companies are competing with each other to snatch up market share, provoking extreme competition. In principle, this can be a problem for investors but it is also an advantage as the bitter struggle between companies makes them all have to innovate and continually improve their products and services to not stay in the queue. Faced with such competitiveness, there is no way that companies with a limited budget can enter the market and still less that they can stay. The current trend is that 3 out of 4 startups die in less than a year, triggering a more cautious attitude on the investor.
Companies in the technology sector are global, not too exposed to fluctuations in local economies. Only a crisis of the industry or of the economy at the global level can make fluctuate the realized investments.
High profitability, a global market, and stiff competition are the reasons to invest. However, there are also some reasons that act as a brake on investment. First, the lack of investors in a particular company is a symptom of weakness. If nobody wants to put money is something does not work and may be enough reason to turn your back on the project.
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Another aspect to keep in mind is that many of these startups are always based on their ideas. They fail to specify how they will get their income once they have taken off, they do not have a business plan. In this way, we find companies valued well above their real value, and this does not mean that the investment will prove to be safe.
Faced with such uncertainty the only thing that is clear is that nothing guarantees success and in most cases, it will be the experience that guides us towards the best decision.