Question

You are an angel investor and you are evaluating the profit potential of an investment in a number of technology startup companies in Austin, Texas. To increase your odds of success you like to invest in companies that have little or no competition.Given your investment philosophy, which of the following situations should you invest in?

a. Company D sells a homogeneous product that has some real differences from competitors’ products in an industry that has some barriers to entry.

b. Company A sells a homogeneous product in an industry that has no barriers to entry.

c. Company E sells many homogeneous products in an industry with no barriers to entry.

d. Company B sells a somewhat homogeneous product in an industry that has a few barriers to entry.

e. Company C sells a product that has no substitutes in an industry that has many barriers to entry.

Answer 1

Option e is the best option.

The company sells a product that has no substitutes. Hence it is not easily imitable by the competitors. The industryhas many barriers to entry and so competition will be limited.

Option a is not suitable since they are homogeneous products which can be easily substituted and hence competitors can enter the market. Option b, c and d are not suitable since there are no or less barriers to entry and hence the company is prone to competition.