Investing in emerging technology is like laying the path for the future. Investors foster the innovations that will permeate the world of tomorrow. 

Take plant-based meat. Today, you can go to almost any fast-food outlet and order an item that faithfully mimics meat without using any animal products. Yet if you laid out this scenario to someone at a cocktail party five years ago, that individual might have dismissed your prediction as simply an interesting whimsy. 

Five years from now, it will no longer be whimsical to see how plant-based meat transforms how we eat. These products are more sustainable, less cruel, and (crucially) getting closer to the real thing in flavor and price. Given these improvements, it’s not only possible but logical to presume that the future of our food supply is likely to see a reduced dependence on animals. (The next evolution, by the way, is likely to stem from cell-based meat; it’s a mind-bending innovation worth bringing up at your next cocktail party.)

It’s socially and financially rewarding to predict the future states of industries before they penetrate the public purview. In fact, it’s hardwired into our brains: The substantia nigra and ventral tegmental area are significantly responsible for feelings associated with reward and pleasure-seeking. This happiness associated with earning a substantial social or financial reward fuels the appeal of researching and investing in emerging technologies.

The Highs and Lows of Investing in Emerging Technology

Like me, lots of investors want to invest in new tech companies because they’re excited about the opportunity in predicting the course of high-growth industries. For instance, we’re in the middle of a data revolution that’s transforming expectations at companies across the shifting paradigm and minting fortunes for early-stage investors. Data-driven technologies clearly have immense promise, and I’m eager to be part of this once-in-a-generation opportunity.

By that, I mean I’m eager to forecast the market forces that will crown winners and losers in this industry. Companies that internalize every decision as a data angle will thrive. Which will emerge as leaders of their respective markets? I, for one, can’t wait to find out.

Beyond investing itself, the most satisfying thing about partnering with emerging tech companies is the opportunity to work with truly brilliant founders. I remember meeting an Argentinian watchmaker 20 years ago who laid out an outlandish but highly convincing plan to dominate the kinetic watch market. His enthusiasm was unforgettable, and I see that same spirit of innovation, ambition, and disruption in many founders today. It’s electrifying and infectious to be around.

However, like all investments, there are immense risks as well as rewards, and when it comes to emerging technology, the risks loom large. Think of the risk surrounding emerging technology as the layers of an onion. The first layer is the concept itself. It might look great on the drawing board, but the founders have to coalesce around the concept to create a strategic vision and engineer it into a viable product. 

Thereafter, the team faces subsequent layers of risk inherent to landing customers, achieving product-market fit, growth, and strategic execution, among others. Things can go wrong on any one of those layers and compromise the whole. Trust me, I’ve seen plenty of promising companies in emerging technology collapse quickly and spectacularly because of something as simple as founder drama.

The industry-shaping potential may be real, but the crust of risk layers is always thick with challenges.

Questions to Ask Before Investing in Anything

Investors require extra levels of due diligence when they invest in tech startups. That means knowing companies’ intricacies like clockwork, but it also means knowing yourself and whether you’re equipped to thrive with this investment strategy. Before embarking on an emerging-tech investment strategy, be sure to ask yourself these questions.

1. How well do you know tech startup investing? Make no bones about it: Investing in startups takes a lot of know-how, and the emerging technology landscape is lined with countless failures. Stepping into tech investing is like saying, “I do pretty well in my fantasy football league, so I’m going to try out for the NFL.” You might make it, but chances are you’re going to get flattened. 

Be honest about how well you really know the competitive forces at the various phases of startup growth and the goals that coincide with additional rounds of funding. Don’t invest in tech startups unless you’re well-versed in these complexities.

2. How will you help the company succeed? Successful investors offer more than moneybags. It takes an all-hands-on-deck effort for a startup to succeed — and that includes you. You might be asked to find customers, make introductions, scout talent, or brainstorm competitive strategy. Consider what you’re uniquely able to contribute and whether you can be an active participant in ensuring the startup’s growth. If not, it might not be a great fit.

3. Do you fully understand the underlying technology? Because emerging technologies stem from unknown territory, they’re inherently confusing. The abundance of tech jargon doesn’t help, either. You need to evaluate how well you understand the underlying technology because it could be a lot less groundbreaking or viable than you’ve been told. The investors in Theranos learned this lesson the hard way. Do you truly understand the inner workings of the product and the road map toward functionality?

4. What do you know about the competitive landscape? Private markets lack transparency, making it harder to obtain quality information about competitors. There may even be startups operating in stealth, waiting to unleash game-changing products without warning. Consider the information you have and the information you lack when deciding whether a new tech investment is worth the risk.

5. Are you adequately capitalized? For every successful tech startup, there are thousands of failures — even the successes may rise and fall within a decade. In the fast-moving emerging technology market, successful investors diversify their bets, which takes ample capital. Do you have enough dry powder in your tech investing account to develop a diversified portfolio, or are you betting everything on a single moonshot?

Investing in emerging technologies is incredibly risky. As someone who is fascinated by the future, I understand that emerging technologies are appealing. However, like all ventures into the future, some of the most important aspects are unknown at the outset. I would encourage everyone to be cautious, critical, and, most importantly, honest about the risks in a tech investing strategy. Before jumping in with both feet, you need to consult with someone already in emerging technology investing.