Over the past decade, a small group of tech companies have been transforming industries with a combination of technological innovation and business model innovation. These companies have achieved exceptional growth over short periods of time despite unfavorable circumstances, such as macro-economic volatility or global competition.
For the investor, the new age companies seem like a risky investment. They don’t obey traditional rules of accounting and reporting, and they operate in a niche industry with low profit margins. But what these companies lack in conventional wisdom, they make up for in innovation and growth potential — turning investors into millionaires. These companies are typically in the tech sector, and create new business models.
Investing in new age companies with high growth and low profit businesses is becoming a trend that is catching on. This has led to newer forms of financing, such as equity crowdfunding and IPO. Some investors are looking to invest in companies with high growth rates but low profit margins, which they believe will lead to an exponential growth rate later on.
Investing in startups with high growth potential requires an understanding of their business models. A lot of these companies are not profitable, but they invest in growth. These new age companies are often valued based on their revenue or number of users, not profits that it generates.
Businesses with low-profit margins have to spend most of their resources on customer acquisition and retention due to the low margins. They need to focus their energy on getting new customers rather than turning a profit per client. For this reason, these businesses may have higher investor expectations since investors expect them to grow aggressively with little emphasis on profitability for the first few years. They have high growth rates but low profit rates. They have high potential of being the next big thing, but they also have a higher risk of failing due to their young age and lack of experience. The company needs to be able to deliver on its vision and promise with consistent and reliable performance which is rare with these types of companies. Investing in these types of businesses can be risky if not done properly because of the low profit margins, but it could be profitable if done correctly.
An investor has to make sure that they are investing in a company that has a strong business model.
The company should be able to provide growth opportunities for its investors and the management team should be competent enough to execute these growth opportunities. This will help them create a more sustainable business.
So, before investing in any new age businesses ask this questions to yourself first do their market expand? is their growth and numbers are real? how do they sustain with low profit margins? how the competitors are playing the game? So once you have a basic understanding of these things then investing is not a big game though!