Aside from the fact that a successful investment firm must have a strong team of people making excellent investment judgments, what qualities does a company’s organisation and culture need to possess? In today’s technology industry, we feel there are at least five must-have characteristics of a successful technology investment organisation.
Technology focus and expertise
One key tip for smart tech investing is to remember that whatever you invest in will necessitate sector knowledge, or to put it another way, you should invest in what you know. If you’re a technology investor, you’ll need to know what you’re talking about. Previously, though, knowing the company, its technology/product, and its market was typically sufficient. But in today’s fast-paced economy, an investor must grasp how technology will affect business and society in the short and long term, as well as if a particular company can be profitable in the next few years.
Silver Lake, a technology focused venture capital firm that focused on technology companies from the outset, even when most of its rival buyout funds were generalists, is an example of an investment firm with a clear focus.
It is difficult to truly appreciate the obstacles of growing a business unless you have founded and created a firm or managed a company operationally through a continuous development phase. Experience in growing businesses, entrepreneurship, and the different hurdles that come with starting a business is priceless. It’s also beneficial to have first-hand knowledge of both accomplishments and failures. An investor who has spent time in the trenches establishing one or more growing firms, through all the ups and downs, will have a significant advantage over those who have not.
Atomico, founded by Niklas Zennström, the co-founder of Skype, Kazaa, and Joost, is an investment firm based on entrepreneurship and expertise scaling (and failing) products abroad.
Both sides of the tech investing table
Many of the best tech funds are the result of a collaboration between entrepreneurs and investors. In the best-case scenario, this is a relationship that can work wonders, but it requires a view from “both sides of the table,” that is, the ability to blend the perspectives of both founders and investors. In practice, this implies that entrepreneurs profit from understanding the workings of the capital market (which many do after a few rounds of fundraising), and high tech investor benefit from seeing things from the perspective of the entrepreneur. This is usually easier if the investor has experience as a founder and business builder.
Local and Global Networks
Markets and sectors in the technology sector are really global, but they are also quite local. The so-called tech hot spots around the world are the most striking sign of the local technology market. Silicon Valley is the most well-known and powerful tech cluster in the world. However, today you can add cities such as London, Shanghai, Mumbai, Barcelona, Berlin, and Stockholm to the list. Having a strong local presence in these hotspots is highly beneficial. The ability to reach out to other international hubs is also a vital success component. Much of the tech world’s activity takes place between local tech cities, building global networks between hubs and people.
When Ben Horowitz and Marc Andreessen founded the venture capital firm that bears their names, one of their first innovations was to pool the partners’ personal and professional networks for the benefit of all their portfolio firms.
Value-creation that is differentiated
Today, there is fierce competition for the greatest companies to invest in. A prudent high tech investor, on the other hand, would not engage in rising price talks and overpay. Remember how famed investor Warren Buffett entered the room as everyone else was leaving? Following the crowd is usually not a success element, but seeing value when others are missing the big picture is. This can include resolving challenging issues or comprehending a company’s long-term technical possibility. Additionally, it could mean believing in the investor’s value-add model’s ability to provide enhanced returns in a novel method.
A portfolio company that takes capital from an investor and bring its people onboard would benefit from many attributes. For example, a dynamic technology understanding, experience building growth companies, the ability to combine founder and investor perspectives, and the ability to leverage networks. If a high tech investor can find value where few others can, it’ll almost certainly be a good transaction.