Technology Banking and How it Affects Its Investors

Mihai Cristea 25/06/2020 | 10:22

With the continuous growth in technology, investors’ interests are being piqued, and they are paying more attention to this fast-changing sector. Partnering up with the right technology investment advisers, investors are always on the hunt for these diamond-in-the-rough kinds of deals hoping they can make some huge winnings. Many financiers and investment bankers are now shifting gears toward technology investment to cater to the growing numbers of investors who are bold enough to enter into this risky realm. If you are a budding investor and want to learn more about technology banking and how it affects you, then you have come to the right place:

What is Technology Banking?

First, you have to understand what technology banking means before we delve deeper into it. In technology investment banking, investment bankers are hired by tech companies to represent them in front of potential investors to get them to either invest in the company, acquire, or buy it. Unlike other areas in investment banking, like financial institutions and real estate, tech investment banking does not require the investment banker to have industry-based knowledge. However, she/he needs to have a clear understanding of the tech company’s services and the gap they fill within the market to be able to convincingly pitch to the investors and make them want to close a deal with their tech client. Technology investment is infamous for its lack of security and having unparalleled high highs and low lows.

Investors Should Be Prepared for Inconsistent Returns

When investing in tech companies, as an investor, you have to prepare yourself for the inconsistent returns your investment will yield. Even when a specific technology seems to be the next big thing, this does not necessarily mean that it will do well commercially in the marketplace. Also, given the speed by which a ‘new’ technology turns over and becomes obsolete, it means that your tech investments are probably not going to be long-term. The tech space is filled with huge multi-billion companies as well as millions of tiny startups that can surprisingly fare better as investment deals than the former ones. To avoid wasting time and money on doomed companies, it is better if you work with investment bankers who have solid experience with the tech sector to manage your portfolio and to give you the right financial advice. 

Growth Investing Can Guarantee Better Returns

Growth investing is a term that is used to describe investments in companies that are bound for growth as per valid market indicators. Companies in this category are often valued at their potential future prices rather than current ones; this means that you will pay a premium for their stocks today. However, the profits you will make in the future will be worth the extra cost. A great example of a growth investment is the Facebook scenario, where the company first offered its shares in the stock market based on a valuation four times its actual price at the time. However, the smart inventors who identified the tech giant as a growth investment and made the right decision to invest early on, have made a serious fortune off of this one deal. So, you can have the same if you pay close attention to the market trend in the tech world and the different variables at play. Bear in mind future earning projections and the cash flow status of the company you are interested in as they can help you analyze the real future potential that goes beyond its past achievements. 

Steer Clear from Research-Based Tech Companies

Although technology investment can be lucrative, the technology sector is generally known for offering lower yields when compared to other sectors. This is even more accurate with companies that are heavily focused on research and development as they are normally reluctant to waste essential research-capital paying for stakeholders’ dividends. Be clear about your investment purposes so that your financial advisers can find you relevant opportunities that you would find worthy of your investments. 

Competition is Ramping Up in the Tech Space

As an investor interested in technology investments, you have to account for the impact the heavy competition in the tech space will have on your investment opportunities. Many players have joined the game; tech markets have spanned across the globe to include potential investors of all sizes and backgrounds. If you are looking to make it in the tech investment area, you have to be prepared to put in the extra work to collect more information about your competitors who are scattered everywhere in the world.

 

Many investors prefer to play it safe and stay as far away as possible from tech investments. However, if you decide to follow suit, you would be missing out. It is indeed a tough sector to navigate, but, when you give it a go and be open to incurring some losses before you can eventually make profits, you will be glad that you stuck through and persisted.

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