What Is a Concept Company?
The term "concept company" alludes to a beginning phase business that is fostering a product or service that investors accept might be of substantial value from here on out.
Commonly, concept companies have not yet proven their business models and are accordingly generally speculative. Paradoxically, mature companies are those whose possibilities for growth and profitability have previously been illustrated.
Understanding Concept Companies
Concept companies are generally associated with emerging technology sectors, where new products and services are constantly designed and moved along. A few investors, like venture capitalists, closely monitor emerging technology companies looking for investment opportunities.
At some random time, investors will regularly be especially energetic about specific "hot" sectors. During the dotcom bubble, companies selling products online arrived at amazing valuations which frequently far surpassed their fundamental strengths as businesses. In those occurrences, investors appeared to be more worried about the hypothetical concept of the company as compared to its investment fundamentals.
Comparable "concept companies" may be found in the present hot sectors, like electric vehicles, artificial intelligence, social media applications, and virtual reality. Albeit a portion of these companies could develop to turn into the next Meta (META), formerly Facebook, or Alphabet (GOOGL), this outcome is extremely rare. In any case, patient investors with a large capacity and readiness to bear risk could regardless prevail with regards to benefitting from a diversified portfolio of such companies.
Genuine Example of a Concept Company
Due to their unique risks, concept companies and other development stage businesses will generally have a lot higher cost of capital than additional laid out businesses. The early investors in these companies frequently stand to lose 100% of their investment on the off chance that the concept company's business model neglects to grab hold. Then again, assuming that the concept company starts to gain footing, its valuation will probably rise substantially all through subsequent rounds of financing. In these conditions, the early investors stand to appreciate emotional gains.
A few entrepreneurs may purposely design their company's marking and marketing introductions to adjust themselves as conveniently as conceivable inside a hot industry sector. One such model happened in 2017 when Long Island Iced Tea Corporation — a manufacturer of chilled tea and lemonade drinks — changed its name to Long Blockchain Corporation in an apparent endeavor to capitalize on market interest in Bitcoin and other [cryptocurrencies](/cryptographic money).
Albeit some concept companies are earnest in their efforts and may well foster productive business models, investors must be wary to try not to overpay for famous business concepts that might have questionable fundamental value as investments.
- A concept company is a business that is known to investors predominantly for its association with a famous or promising industry sector.
- By and large, concept companies have would in general fall all through favor as various industries become investing fads.
- Concept companies normally have obscure or unproven business models and are accordingly seen as exceptionally speculative investments.