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Investing In Startups – The Time Machine Factor

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Investing In Startups – The Time Machine Factor
by: neil

Remember those time travel and science fiction movies when they get into those amazing time machine contraptions, select the era and the year they want to travel to, turn a few knobs, pull the lever and they’re warped into an era far ahead or way behind the present? Do you also recall in some of these stories the time machine doesn’t reflect the reliability of German auto engineering and the traveler finds himself lost in the future or past, but not in the year he dialed in? Early phase startups have to deal with this time machine factor quite often especially if it’s an innovative or out of the box idea that’s slightly parallel to everything else out there. There are a lot of factors that could be behind this but the bottom line is, sometimes the market is either just not ready yet (perhaps warming up) or already over what a startup has to offer. In a few cases, a startup may have already missed the bus on what they planned to go to market with, but more often, a startup can be ahead of it’s time. Like the guy who went to the future on the time machine, but not everyone could relate to him yet since they were some years behind. As angel investors, it’s not as if you shouldn’t invest in that guy whose startup is perhaps a little ahead of its optimum time, but it’s important to be able to spot that in an idea and have your expectations set accordingly. Tips for first time angel investors or crowdfunding : • If the startup is ahead of its time and the market is not reacting at the expected rate yet, factor in the waiting or slow ramp up period in the amount you invest and your expectations on how your investment could grow.

The startup will need more cash reserves if it seems ahead of its time till the market catches up and revenues grow more sharply. • If it appears that the market is already responding very quickly to the offering or others similar to it, then you may need to consider if this market has already peaked and may slow down in a few years. This isn’t normally something to worry about since quick growth is always great, but it’s smart to think about where in the life-cycle this idea maybe and how much lies ahead for it in terms of future growth, since it could influence your investment decision. • Spot very late entrants who may not have a shot at competing in a market that’s already saturated. For example recent news that American Airlines is withdrawing permission from third party travel planning sites like Expedia, Travelocity and Kayak is a bad sign for a startup that’s just getting into this space with their own airline ticketing aggregator. Unless it has something considerably different it can offer which can put it ahead of existing companies the probable trend of large airlines trying to regain exclusivity on their ticketing sales, will sink its chances from the start. In the end, being able to spot the time machine factor (this is just what we are calling it since it’s a cool name) is important as an investor mainly to have reasonable expectations on the investment you are about to make. I would say that one of the biggest challenges is actually knowing when or where the big growth can happen. When Google started, search was nothing new. There was Yahoo, Lycos, Hotbot, Altavista and others. Facebook started when social networks was “nothing new” (MySpace). Sometimes it could appear that the timing is wrong and you are in the wrong time zone – when in fact it could prove otherwise. Just because a startup is ahead of its time or behind the early birds, it never guarantees that it will emerge far ahead of its competition or anyone’s expectations. The key lies in being able to get the expectations and timing just right.

Summary Early phase startups have to deal with this time machine factor quite often especially if it’s an innovative or out of the box idea that’s slightly parallel to everything else out there.There are a lot of factors that could be behind this but the bottom line is, sometimes the market is either just not ready yet (perhaps warming up) or already over what a startup has to offer. In a few cases, a startup may have already missed the bus on what they planned to go to market with, but more often, a startup can be ahead of it’s time.

Description Tips for first time angel investors or crowdfunding:

•If the startup is ahead of its time and the market is not reacting at the expected rate yet, factor in the waiting or slow ramp up period in the amount you invest and your expectations on how your investment could grow.

•If it appears that the market is already responding very quickly to the offering or others similar to it, then you may need to consider if this market has already peaked.

•Spot very late entrants who may not have a shot at competing in a market that’s already saturated.

Tags: Angel Investors, Crowdfunding, Crowdsourcing, growvc, investments, Knowledge

Posted by Benjamin Fossel

Nov 14, 2011 09:00 am GMT Viewed 1969 times

Author: neil Source

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Investing In Startups – The Time Machine Factor

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