When it comes to choosing the right kind of investment option, there are many factors to consider. Some options offer a quick payout but might also come with a fairly high risk of losing your investment entirely; some may be a more solid investment but it will take a long time to watch your money grow. Other types of investment require more of an upfront investment than what you currently have to invest, while other investments may not offer the type of return you are looking for. Startups are becoming more attractive to investors due to their unique qualities. Tech startups in particular are becoming an increasingly popular investment choice.
Low Startup Costs
Steve Jobs famously started Apple out of his parent’s garage, and Mark Zuckerberg built his tech empire from his college dorm room. Tech startups generally don’t need warehouses to store inventory or manufacturers to create their product, nor do they need a product to be shipped anywhere to start generating profit. Many tech giants have been built with as little as a few thousand dollars in startup costs which appeals to investors due to the lack of initial debt a company has.
The faster a business grows, the faster it will start generating profit. While not all tech startups will become the next Facebook or Apple, they will often quickly generate enough profit to at least pay back whatever their investors initially invested. Unlike a loan, however, investors generally also get a piece of the company itself. This means that if a tech startup generates a few million in profits before tanking, investors still walk away with at least their initial investment back and maybe even some profit. If it does become the next Facebook, Uber, or Apple, however, they could end up recouping several times their initial investment in just a few years.
Better Barriers to Competition
Apple makes a number of products that all work seamlessly together, so if you use an iPhone, it also makes sense to use an iPad, iPod, Apple Watch, Apple TV and Mac computer. The fact that Apple owns its own operating system creates a unique and effective barrier to competition, which also allows them to control roughly 40% of the smartphone market, while competitors have to fight over the Android market. If you buy a pair of Nike tennis shoes, there is no reason not to wear them with Reebok socks, Under Armour shorts, or an Adidas shirt. In the tech world, however, where software and hardware are often dependent on each other, it is much easier to create barriers to entry for competitors. This appeals to investors as companies that control an industry or even hold a monopoly over one are less likely to fail over time due to their existing success and lasting impact.