Technology startups are a dime a dozen nowadays, and it can be hard to tell the difference between a real potential and one that is merely trying to ride the coattails of an established brand. The truth is that there are several distinguishing signs which can separate the pretenders from the real deals. As such, it is necessary to know what to look for to differentiate a mediocre prospect from a promising startup. In this article, we will discuss the five main distinguishing points which indicate that you are dealing with genuine potential. Hopefully, by the time you have finished reading this, you will have a better idea of how to distinguish the good from the great and a clear picture of what to expect from technology startups in the future.
The first and foremost sign to look for in potential technology startups is a strong intellectual property portfolio. Intellectual property (IP) is considered to be the key ingredient of any successful business venture. Thus, a clear commitment to building a strong intellectual property portfolio is an important first step towards nurturing a successful business. Most often there is a general misconception that technology startups sell the intellectual property when in reality they usually sell “the technology”. However, a true technology startup is focused more on developing tools or technologies that solve actual issues for users. For example, a healthcare start-up may develop diagnostic tools to help doctors make a better diagnosis or provide better treatment options to patients with cancer.
The second fundamental point to look for in potential startups is a detailed business plan. Technology startups usually present a detailed business plan to raise funding along with a mission statement and marketing plan. Usually, the business plan is accompanied by an executive summary which provides a short history of the company, a description of the business model, and a description of its long-term vision and goals. While these two elements are extremely important, it is the overall business plan that will reveal the true depth and breadth of potential founders’ and investors’ knowledge of the technology.
While it is important to consider both technology and business ideas, funding is by far the most critical factor. Many startup companies fail to raise sufficient capital from investors and receive only a few hundred dollars for their efforts. As a result, they are forced to work with limited resources and are not able to make any meaningful progress in their field. In addition, a good funding source will provide documentation on what percentage of the equity will be offered up as equity to the company, and what percentage will be used to build the business. Without such information, it is impossible for investors to assess the risk of investing in the startup. Only after the startup has obtained enough money to hire a full-time management team and carry out some initial sales activities will a realistic picture of the company’s short and long-term success be generated.
Finally, one of the most overlooked aspects of technology startups is the legal structure they will adopt. Often, investors will pass on financing because the legal structure is ambiguous or does not make clear what a startup actually is. Unfortunately, there are also a number of venture capitalists who will fund startups without clearly identifying the purpose for which they are acting. This causes companies to enter into business arrangements with such unsavory characters, putting their futures in peril. For these reasons, it is important that startups carefully identify their legal structure and consult legal counsel before proceeding.
Technology startups are entering into a very volatile and competitive field. To succeed, they must establish a strong business model and work hard to convince potential investors that they have a lucrative opportunity in the business sector. Investors should take special care to research the businesses they are considering funding and look for an organization that clearly identifies its target audience and plans to effectively communicate to that target audience. Such organizations will provide a reliable startup capital solution that allows startups to achieve their business goals while developing a solid growth plan that growing their company at a rapid rate.