CONSIDERATIONS WHEN INVESTING IN EMERGING TECHNOLOGY COMPANIES

By George Likourezos, Esq. Carter, DeLuca & Farrell LLP, Partner, Intellectual Property Attorney

When investing in emerging technology companies, family offices and investors should consider several key factors to make informed decisions. Here are ten areas that should be strongly taken into consideration when considering a tech investment.

1. Management Team: Assess the capabilities and track record of the company’s management team. Look for experienced leaders who have a strong understanding of the technology industry and a clear vision for the company’s growth.

2. Market Potential: Evaluate the size and growth potential of the target market. Consider factors such as market demand, competition, and the company’s ability to capture market share. A large and expanding market presents better opportunities for growth.

3. Competitive Advantage: Determine whether the technology company has a unique value proposition or competitive advantage that sets it apart from its competitors. This could be proprietary technology, intellectual property, strong partnerships, or a well-established brand.

4. Financials: Analyze the financial health of the company, including revenue growth, profitability, and cash flow. Evaluate the company’s business model and assess its ability to generate sustainable revenue streams.

5. Innovation and R&D: Consider the company’s focus on innovation and research and development (R&D). A strong commitment to advancing technology and staying ahead of market trends is crucial for long-term success.

6. Scalability: Assess whether the company’s technology can scale effectively as the business grows. Look for signs of scalability in terms of infrastructure, customer acquisition, and operational efficiency.

7. Risk Assessment: Identify and evaluate potential risks associated with the technology company, such as regulatory challenges, intellectual property infringement, cybersecurity threats, or market volatility. Understanding and mitigating these risks is essential for successful investments.

8. Exit Strategy: Consider the potential exit options available for investors, such as an initial public offering (IPO), acquisition, or merger. Evaluate the likelihood of a successful exit and the potential return on investment.

9. Due Diligence: Conduct thorough due diligence by reviewing financial statements, market research, customer feedback, and any available industry reports. Engage with industry experts or advisors to gain deeper insights into the company and its market. Consider whether there exists intellectual property owned by third parties that can block the technology from being commercialized in one or more lucrative markets, such as the US and Europe, or lead to a patent infringement lawsuit.

10. Alignment with Investment Goals: Finally, ensure that the technology company aligns with the family office’s or investor’s overall investment objectives, risk tolerance, and time horizon. Investing in technology companies can be high-risk/high-reward, so it’s crucial to match the investment opportunity with the investor’s goals.

Remember that investing in technology companies carries inherent risks, so it is advisable to consult with financial and legal professionals to ensure a comprehensive assessment of any potential investment opportunity.

A resource you can consider is the intellectual property law firm of Carter, DeLuca & Farrell.  The attorneys of Carter DeLuca can assist with many of the above areas, including evaluating the company’s Competitive Advantage, Innovation and R&D, Risk Assessment, and Due Diligence. The firm can also provide guidance and representation to technology companies as they build and expand their intellectual property portfolios and with brand protection to be investible and prevent issues as they scale. Carter DeLuca has assisted hundreds of companies scale and grow, identify investors, and protect their intellectual property, and has also assisted many investors in making informed business decisions when investing in technology-based companies.

For a free consultation made available through Spotlight Family Office Group, please contact Matthew T. Sheridan at Matthew@SpotlightFamilyOffice.com.