Top Tips for Investing in Tech Startups

Investing in new or small tech companies can be a risky venture. Eyecarrot founder, President and CEO Adam Cegielski tells investors what to watch out for.

investing in tech startups

One of the tech market’s many strengths is its vibrant startup culture. Whether these companies are funded by venture capitalists or make an early IPO, they present enormous possibility for bold investors. However, with so many startups out there involved in every facet of the market, it’s difficult to decide which companies are worth taking a risk on.

To get some insider advice about what investors should be looking for, the Investing News Network spoke with Adam Cegielski, the founder, President and CEO of Eyecarrot Innovations Corp. (TSXV:EYC). Eyecarrot is building the BinoviTM Cloud, a universal system for testing and measuring a human’s Oculomotor Sensory System. The system will connect patients, vision care practices and specialized vision performance centers on a shared data and technology.

Speaking from first hand experience, Cegielski talked about building a business in the tech sector and what investors should be looking out for.

Startups need to know their focus

This first tip holds true for for everybody in the tech market. In an industry as amorphous and rapidly changing as tech, it’s essential for companies to have a specific vision of who they are and who they aspire to become. Without a clear focus, companies can cause disruption in the market – and not the good kind! Technology is a closely interwoven ecosystem, with many companies working in tandem to create amazing end products. However, without a clear focus, companies could create confusion about who they are trying to support with their technology and who they are targeting as competitors.

In our conversation, Cegielski offered up the perfect example of this. Eyecarrot largely operates in the healthcare field, working with scientists, doctors and clinicians to help make their practise better and more efficient. However, Cegielski is insistent that Eyecarrot is a tech company, not a healthcare company. The importance of recognizing this distinction became apparent when Eyecarrot considered acquiring a healthcare clinic. Other industry participants pushed back against this decision, questioning “are you offering us technology, or are you competing with us?” Ultimately, Eyecarrot chose not to proceed with the acquisition and instead focused on developing its innovative technology.

This was a learning moment for Eyecarrot, and for every startup company in the tech scene. The experience helped Cegielski articulate a clear identity for Eyecarrot. The company, he explains, is focused on “helping [healthcare professionals] on the technology side, so they can just focus on being good doctors.” Therefore, one of the most important early developments for Eyecarrot was deciding who exactly it wanted to be as a company. Investors, then, should seek out companies with a similarly clear sense of identity.

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Look for future market leaders

However, start up companies don’t just need a clear sense of identity, they also need a bold vision of the impact they will make on their target market. Cegielski’s goals for Eyecarrot are very clear: “we want to be the leader in the occular motor systems market.” This emphasis on leadership echoed throughout our conversation, as Cegielski explained “it’s a rare thing to become the leader and it’s great to be the first one.”

For individuals looking to begin investing in tech startups, this potential for market leadership is a key factor to consider. The first and best company in a specific niche has a clear advantage over other competitors, making it an appealing investment opportunity. Therefore, you don’t just want to find a company with a clear sense of identity. The company also has to have an innovative value proposition that targets a new and underdeveloped area of the market.

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Investing in tech startups means understanding the market

Finally, start up companies need to understand the market that they are targeting. As Cegielski states, “if you’re trying to build a mobile software-as-a-service platform, or an ecosystem, you really better know who else is operating, and evaluate your opportunity in that space.” Eyecarrot committed itself in this regard, observing that “the vision therapy market hasn’t grown” in the past several years. The company did a lot of research trying to figure out why this was, and how Eyecarrot could practically intervene with its new technology. In this case, Eyecarrot is “building from a foundational spot,” and targeting a real need in the market.

Investors, then, need some degree of familiarity with the markets that they’re investing in, to get a sense of the start up company is addressing a clearly underserved niche in the tech sector. Companies that have done due diligence have a much greater chance of succeeding on the public market.

All in all, investors need to be aware of these three key factors when investing in a relatively unknown entity: the company needs to have an articulated focus, be a clear leader in their technology niche, and understand the market which they are targeting. If these three components are fulfilled, as Eyecarrot has done, the chances of the startup company succeeding become much higher.

In the comments, let us know what you look for when investing in a risky unknown, be it a tech startup or another sort of small cap company. Also, don’t forget to follow us @INN_Technology for real-time news updates.

 

This article was originally published on April 4, 2016 on the Investing News Network.

Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Eyecarrot Innovations is a client of the Investing News Network. This article is not paid-for content.

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Comments
  • Hi,

    This is a kind of information which I had been looking for a long time. You have done a great job. It’s really a useful and informative post for beginners. Everyone should get to know this information.
    Keep sharing your experience with the readers.
    Thanks a lot for sharing this great post with us

    Reply

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