What are the Benefits and Values of External CTO Services to Investors?

Investors are always seeking strategies to reduce risk and boost profits since choosing to make an investment in a startup can be a hazardous move. Investors might encourage firms to acquire outside CTO services as one approach to do this. Startups may improve their technology strategy, strengthen their product development, and ultimately raise their chances of success by hiring an experienced and qualified CTO, which is advantageous to both the business and the investor.

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Improved Due Diligence

From the standpoint of an investor, encouraging firms to use outside CTO services can aid in due diligence. With a CTO on staff, a firm is more likely to have a solid technical plan, which helps increase investor trust.

According to Dunkel (2019), "a CTO can help a startup with the product-market fit, create a better tech stack, reduce technical debt, and help to identify the skills and resources needed to bring a product to market." Investors can better predict how a firm will function in the long term by having a CTO involved in the early phases of the startup's development.

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Risk Reduction

Employing a third-party CTO may assist investors decrease risk, which is something they are constantly searching for. According to Martin (2019), "startups with a fractional CTO are often able to de-risk technical decisions, which can help to prevent costly mistakes down the road." Startups can avoid making typical errors and can be better prepared to tackle any unforeseen obstacles by bringing on a seasoned CTO.

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Enhanced Returns

Getting a return on your investment is the ultimate aim of investing in a business. Investors can improve their chances of accomplishing that aim by pushing startups to use external CTO services. An experienced CTO and a solid technological plan increase the chances of success for startups, which can increase investment returns. Adding an external CTO may assist guarantee that a firm has a strong technological basis, which may result in quicker growth, a larger market share, and higher revenue, as noted by Ratcliff in 2021.

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Achievement of Milestones and Increased Valuation

A startup can also benefit from an external CTO's assistance in achieving significant milestones, which can raise its valuation and eventually benefit investors. Startups may enhance their product development and technology strategy, which can result in quicker growth and higher success, by hiring a CTO with experience and knowledge. According to Johnson (2018), "a fractional CTO can help startups to identify the key technology milestones they need to achieve in order to succeed and can provide guidance on how to achieve those milestones."

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Studies and Examples

The procurement of external CTO services has already helped several firms, both in terms of the startup and the investor. For instance, Atomico recently led the $15 million fundraising round for Qatalog, a European firm that offers a single platform for office products (Lunden, 2021). The company's choice to bring on an outside CTO was a major contributor to their success since it enabled them to create a solid technological strategy and hit significant milestones.

An additional example is Plytix, a Danish startup that provides an e-commerce company with a product information management system. The company's choice to work with a fractional CTO enabled them to accomplish tremendous growth and optimize their IT strategy, which eventually resulted in a profitable escape for investors (Goldman, 2019).

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