One of the big dangers with investing in technology start-up firms is jargon. It’s very easy to get bowled over by jargon. Nobody likes to appear stupid or uninformed. In many cases, otherwise successful and intelligent investors simply go along with jargon-talking start-up hucksters because they’re intimated by jargon. Many otherwise intelligent investors think that if a particular piece of jargon is quite popular on social media and in the financial world, then it might be a safe bet.
If this is how you think regarding start-up investments, you might want to think again. You don’t want to waste all that investment capital betting on something you don’t fully understand. The sad reality is that American start-ups are raising millions of dollars due to hype. There’s really not much that investors can do about this besides being more vigilant.
The rule of thumb you should follow is if somebody throws out a piece of jargon out there during a pitch or investor meeting, you need to stop that person and ask that person to define that jargon. Better yet, ask that person to produce a real-world example. If they can’t, then you know you’re dealing with somebody that’s just blowing hot air your way.
One of the biggest terms being kicked around in the investment world right now is big data. Everybody seems to be crazy about it. In fact, large companies like IBM (NYSE:IBM) are investing millions of dollars into big data. Not surprisingly, a lot of hucksters are using moves by Microsoft and IBM to legitimate their take on big data.
The problem is big data is actually very specific. It’s all about manipulating and mining data to resolve real business questions. Unfortunately, a lot of big data is in-house. While there are some open-source pools of data, most of this is government data. In terms of actual commercial data you can use, a lot of this data is actually kept in-house by large corporations. Why would they share an information that can be used by their competition? Makes sense, right?
Unfortunately, try telling this to big data hucksters. A lot of the hype out there revolves around the misconception that there’s this huge amount of publicly available, commercially valuable data that only a piece of technology can unlock. Make no mistake about it, big data does have a huge potential. Sadly, when it comes to manipulating it and converting it into cold, hard dollars in your pocket, we’re not there yet. Moreover, the companies that are well positioned to fully leverage big data are giant tech corporations.
Keep all the above in mind. I’m not saying that you shouldn’t invest in a startup focused on big data. However, you need to invest with your eyes open. You also need to have a full understanding of the nature of the opportunity you’re betting your hard-earned money on.