Are entrepreneurs spending too much on tech start-ups?

Tech Start-up

Before pouring money into a technology startup, investors will conduct a multi-faceted due diligence process to evaluate a business. This process more or less varies according to the motivations, standards, and tastes of each investor.

Are entrepreneurs spending too much on tech start-ups?

Because strategic goals are very diverse and change depending on each investor, in this article we will focus on analyzing the main points that a  profit-oriented investor cares about in a public startup technology at the Seed stage, and what startups should do to score points in their eyes. This will answer the question, are entrepreneurs spending too much on tech startups?

What do entrepreneurs and investors care about?

Product-market fit assess

Specifically, with startups at the pre-seed to seed stage, which is the product and market testing stage, investors want to assess whether the market has the problem/need that the startup is solving or not. , and the product is something that the market  "must-have"  or just  "nice to have". This can be partially assessed through several metrics such as user growth, user feedback, or user engagement.

With startups at the seed stage onwards, investors are interested in whether the startup has reached product-market fit or not, that is, has verified that the market has a real problem to solve, and the product solves that problem. To assess this, investors once again look at the statistics  (traction)  as the growth rate of users, feedback, engagement, and demand payment for their products.

Market potential assessment

By studying the market, investors assess whether this is a large enough and potential market that the startup can achieve exponential growth, whether the conditions in the market allow it. enable the company to achieve future revenue superior to the initial investment costs. If a technology startup has potential, investors are ready to offer impressive discounts to initially support the startup

Competitive rating

Investors also compare the startup's products with similar products on the market to find differences, which are different values ​​that make customers want to buy that startup's products instead of other products. A disruptive product in the market is judged to be many times better, many times cheaper, or many times more effective than the existing product. Otherwise, the startup will always face an edge problem to attract customers.

Evaluate market penetration strategy

How will startups enter the market?  That is the next question that investors care about. Investors will analyze the startup's market penetration plan and assess whether the startup can attract a large number of customers at an acceptable cost.

Startups will need to map out information such as through which channels they plan to reach customers, how to do sales & marketing through those channels, how many customers are expected to receive, etc.  From here, investors can Compare the expected amount of revenue that the business is expected to receive compared to the cost to attract customers  (CAC - Customer Acquisition Cost). This will partly assess the growth ability of the business.

Are entrepreneurs spending too much on tech start-ups?

Technology assess

With technology products, the nature of which is the continuous interaction of users  (such as social networks, connection platforms, news sites, ...).  Investors are also interested in whether the technology infrastructure can cope when the number of users unexpectedly increases, because if this happens and the application/website "collapses", the customer experience will immediately be affected, and the business also loses its reputation.

In the case of a large number of users, can the company solve the technology infrastructure problem without spending more resources, or is it a big problem that the company can not yet solve? The answer to this question will contribute to assessing the growth potential of the business.

Especially for technology startups, a  Product Management team is very necessary, because the tastes and needs of the market for technology products change constantly, so the product also needs to change to adapt quickly. with market changes.

Another factor to consider is that the startup has an in-house team in charge of technology, or must outsource. This greatly affects the ability to develop products and the speed of solving product-related problems during customer use or changing market needs.

Growth plans and projections

An important part to evaluate when investing in a tech startup is its growth plans and projections.

This section includes an estimate of the user growth required to achieve a certain growth goal if user engagement, cost of acquisition (CAC), and level of engagement remain the same. the customer's retention rate as it is. Investors also require the startup to achieve a certain amount of revenue growth if factors such as customer lifetime value, price, product package, etc.

With these predictions, investors will pay close attention to the assumptions used by startups to come up with these numbers, such as valuations about market size growth, profit margins, or investment costs.  With financial projections like this, the startup needs to raise a large amount of capital at least until the startup breaks even and starts to turn a profit, or at least survive to the next round of funding.

These are financial projections of business growth, investors are next interested in financial projections of future business value, and the assumptions associated with these projections. From there, investors will evaluate whether they can have a reasonable exit strategy  (ensure the return of the investment).


In short, when investing in a technology startup, investors are willing to spend a lot of money if it is a technology startup that has potential and can grow. And once developed, it will bring huge profits for them. That is why technology startups should clearly show their strengths to attract business investors.

Wajid Majeed

Freelancer, blogger, digital marketer, affiliate marketer, seo master,

Post a Comment

Previous Post Next Post