Technology isn’t just the future, it’s the present. That’s why many non-tech companies are thinking about tech startups and investing in technology. If your company isn’t up to speed to innovations in your sector, it’s bound to stay far behind the competition.
From artificial intelligence (AI) to the Internet of Things (IoT), you have to be on top of the latest developments. Buying a tech business may be far-sighted yet highly challenging. In this article, we’ll share several important tips on buying a tech company.
1. Choose Your Area of Investment
What type of tech business do you want to invest in? Here are a few options that are likely to be demanded for decades to come. If you manage to buy a tech company, which specializes in one of them, you have a high chance of succeeding.
- AI – a company that creates devices or software for artificial intelligence to perform tasks usually required of a human brain. This also includes machine learning (computers learning new tasks from their experience). The most popular AI today is Amazon Alexa.
- Smartphones – anything that has to do with new smartphone apps and other software has excellent potential. However, creating hardware for these devices is also popular. Just think about the camera quality race between Samsung and Apple.
- Blockchain – blockchain technologies are used for much more than simply selling and buying with cryptocurrencies. It’s a transparent and highly secure payment method, which is slowly conquering the world. A tech company that focuses on blockchain-related technologies, software and hardware is likely to be successful.
- Self-driving tech – manufacturers that focus on self-driving cars are currently considered the future. Even though these vehicles aren’t legal in many countries yet, new tech solutions are bound to make them popular. If the company is dealing with self-driving tech, it has a high potential.
- Software – software development companies are springing up like mushrooms after the rain. The reason is their high popularity and substantial demand for new software. Buying such a company is a safe way to ensure revenue as long as you know the marketing basics.
- Computers – another safe haven is a tech company that works with computer-related hardware. Their services are highly demanded all over the world. If the business you are about to buy is offering worthy innovations in the sector, it’s likely to have a bright future.
- Specialized Hi-End tools – VR gadgets, appliances, microphones or headphones, cameras etc. But be sure you have enough resources to compete companies like DPA with their Top-tier Condenser Microphones production.
- IoT – smart devices, hardware, and software related to IoT technology is also highly demanded. Anything from smart fridges to smart cities is currently on the rise. So if your potential tech company is supporting this trend, you have excellent chances of succeeding.
Other popular niches include the internet, streaming media, cloud, and cybersecurity.
2. Hire a Buyer’s Broker
While selling a business usually involves hiring a business broker, not too many companies and individuals decide to opt for a buyer’s broker. However, such an expert can help you find what you are looking for, finalize an excellent deal, and ensure a smooth buying process.
According to an experienced business broker, Cress V. Diglio, best deals happen when a business broker and a buyer’s broker work simultaneously. Eventually, they can come up with satisfactory terms for both parties.
If you are a non-tech company trying to buy a tech business, you need all the help you can get. That’s why you may want to hire an expert in the field. Just make sure the buyer’s broker has experience purchasing tech companies.
3. Consider the Risks
Even though investing in a tech company is the right thing to do, you need to understand the risks. Thousands of startups appear every day with the hope to conquer the world. They come up with thousands of new technologies, only a few of which find their niche and become successful.
If you buy a company with unproven technology, you may be wasting your time and money. However, if you wait for it to achieve approval and acceptance, it may be too late, as the competition will be offering higher prices.
Finding the balance is tough so you always have to take risks. You also need to understand how much it will cost you to bring new technology to the market. It’s not enough to create something and make sure it works flawlessly. The toughest part is the sales channel development.
The investment in the company will be much higher than the cost of the business itself.
4. Check the Rights
When you are investing in new technologies, you have to figure out the intellectual property rights issues. Paying for the product and marketing efforts is useless unless you have the rights. So when you are purchasing a tech company, make sure that it’s the owner of all technologies it works with.
Pay special attention to licenses and contracts the company has. While it doesn’t seem important at the early stages of technology development, it may come as a terribly unpleasant surprise down the road.
5. Keep the Team
When it comes to developing technologies, teams are 90% of the company’s value. If after you buy the company, half of the team leaves, the value of the business drops by 50%. That’s why it’s important to negotiate team retention before purchasing a company.
While you are contemplating the purchase, do research about the team members. They will become one of your biggest assets. If something seems off about their experience or past work, be careful.
Buying a tech company is always a risk. However, taking it is usually justified. With the right research and assistance, you have all the chances of making a smart investment in the future.