With the rise of digital platforms and apps, investing in someone else’s business app has become an attractive option for investors looking to diversify their portfolios. This allows investors to tap into the growth potential of technology startups without taking on all the risks of building an app from scratch. However, there are both advantages and disadvantages to consider. In this article, we will explore the key benefits of investing in an existing business app over trying to create your own.
Access to an Established User Base and Market Validation
One of the biggest advantages of investing in an existing app is that you gain instant access to an established user base. Building an engaged community of users can take years and a lot of marketing spend. So investing in an app with proven traction skips over this challenging phase. Having a history of downloads and usage also provides market validation that there is demand for the product. As an investor, seeing this level of market validation gives more confidence that the business model is sound.
Faster Time to Market and Revenue Generation
Launching a successful business app requires significant upfront development costs and effort. By investing in an already functioning app, investors benefit from the product development that has already been completed by the founders. This means your invested capital can go more directly into scaling the business through marketing, hiring, R&D and other growth initiatives. Rather than waiting years for an MVP product, you are investing in a business that can generate revenue on day one.
Lower Risk Profile
Creating an app from the ground up carries substantial technology, market and execution risk. Many startups fail simply because they build apps no one actually uses or need. When you invest in an existing business app that has shown some initial traction, it helps mitigate technology risk and market risk. Essentially by seeing positive signals in terms of traction and metrics, you know there is at least product-market fit to some degree. This translates to lower potential downside risk on your invested capital.
Potential for High Returns
Despite the lower risks, investing in an existing business app can still result in outsized returns. Many technology companies scale extremely fast, which leads to exponential growth in valuation. And apps tend to benefit from powerful network effects – where increased usage leads to disproportionate gains in value. So if you pick the right app that is poised for rapid growth, the returns on investment can easily eclipse what is possible in public equities and other asset classes.
In summary, investing in someone else’s business app provides faster access to upside while minimizing downside risk. Established user traction, revenue history and technical validation all give investors more confidence in the viability of the business. And buying into an existing app creates optionality for much higher returns compared to building from zero. For these reasons, investing in an existing app tends to be lower risk and higher reward compared to trying to create your own.