Tuesday, February 10, 2015

Why Investors Seek to Invest in Startups?

In natural systems, when a population grows in size and number so that the resources available to it are not enough for survival, growth, development and reproduction such population then experiences a a natural decline in the rate of growth and reproduction. The more crowded the population initially is the faster such population reaches the decline in rate of growth.

In the business world a similar phenomenon is observed. The more crowded a specific market is the sooner it reaches saturation and thus business growth rate starts to decline in such market. In such occasions, in order for a business to grow, it seeks fresh new virgin markets to exploit.

This models also gives us insights into startups. Startup companies tend to have a high failure rate yet they grow so rapidly. The potential of growth in such companies is phenomenal. This is what can attract many investors to seek investing in startups, despite their high risk they do at the same time show a high potential of rapid growth and thus exceptionally high return on investment.