Sergey Kartashov (Sergejs Kartasovs), head of the Cyprus asset management company Generation Partners LTD, tells us about how to invest in IT, what to look for when evaluating a project and how to avoid obvious mistakes.
In 2020, the IT market faced turmoil. However, it quickly managed to level out and recover. Now, this industry keeps on developing and investing in IT is as popular as before. And there are several reasons for this:
- a small threshold of entry—from $10,000, an amount available even to novice investors;
- the huge potential of the industry—new projects are launched every day, yet the market is still not overloaded;
- the relatively short payback time of the investment;
trend and fashion.
Common types of investments
According to Sergey Kartashov, the simplest investment type is purchasing shares of well-proven companies, like Google, Twitter, Microsoft, etc. In this case, the risks are minimal but there are also little chances for excess profit. This option is suitable for people who prefer “a bird in the hand”, want to securely keep their funds and get a stable profit. However, even when you are investing in a big company, you should better get enough information about it, look at the dynamics of its development, and keep an eye on the latest industry trends in the market.
Investing in startups
Investing in startups is a quite tempting investment type. If you chose the company right, you can significantly increase the amount invested. But it is not that simple – about 90% of startups stop working during the first year after launch due to a high level of competition and team mistakes at the initial stages of a project’s life.
When investing in a startup, there can be also considered angel investments when money is invested in a company at the very initial moment. A business angel, as a rule, gets the opportunity to influence the development of the company, however, they should rather avoid taking too large a stake in the company, as this can turn venture investment into purchasing a company. Then, developers, by becoming de facto wage laborers, can lose their enthusiasm. When engaging in angel investments, you should remember that this investment type is similar to sponsorship, but instead of supporting artists you give a hand to talented programmers.
Investing in gaming
Particular attention should be paid to the gaming industry as this direction is on the rise now. Computer games are no more just entertainment for children and teens; they have become part of the culture and everyday life of a large part of the solvent adult population. This market is growing by about 20% annually. Almost every smartphone and every PC or laptop has at least one game installed. And there is a wide field for investment here, as you can invest in the development of start-ups or support already established companies. You can also pay attention to platforms that sell games and their components (characters, game tools, etc.).
At the same time, Sergey Kartashov warns potential investors against haste – as a rule, the first six months a computer game does not generate income at all. It is already a good result if within 12 months after investing you can get back 50% of the investment amount. The income comes later. On average, over the entire period, a good game can bring 500-800% of the profit.
Things worth attention before investing money
When it comes to investing, one of the key problems today is the analysis of impressive volumes of information. We are literally floating in an ocean of data. It is not easy for a novice investor to follow a constantly changing situation. Not to mention that not all information is reliable and trusted.
Asset management company Generation Partners helps investors and promising startups meet each other. Its tasks include finding such projects, evaluating them, and optimizing investments.
Sergey Kartashov insists that every investor needs to conduct a qualitative analysis of a company before investing their own funds in it. The investor needs to take into account many factors and collect as much information as possible about the company’s management and team.
- What is their experience?
- How is their workflow organized?
- How do they assign responsibilities?
- How much of their own funds have they invested in this venture?
- How detailed and realistic is the business plan?
There should be formulated clearly the idea of the product, its target audience, and the competitive advantages of the product or the service. It is also necessary to pay attention to the country of registration, whether there are other investors, and what is the amount of their investments.
The head of Generation Partners advises to remember about diversification – if possible, it is better to support several projects instead of only one. This way, you increase the chances of finding a successful project that not only returns the invested funds both in this project and other companies but also makes a profit.
According to Sergey Kartashov, of all the projects he has ever analysed, only 0.5-1% are promising, but their implementation pays for all unsuccessful investments and costs.