THINK LIKE A PROFESSIONAL INVESTOR
Don’t let your personal relationship cloud your
business judgment. Evaluate the request as if it
was coming from a stranger.
Does the business offer something unique?
Does it fill a need in the market? Does the
founder have business acumen? Do they have
experience in the industry?
“A professional investor always wants to see where
the ‘Aha’ is,” says Dileep Rao, clinical professor
of entrepreneurship at Florida International
University. “Is this likely to become a major
company? If the potential is huge, it makes sense
from a financial perspective.”
You also need to know the terms of your
investment and what you’re getting in return. If
your friend is asking for a business loan, discuss
the repayment timeline and interest.
If your investment is in exchange for equity,
review the terms. Is it solely a financial
transaction, or will you have access to and input
on business operations?
A handshake deal doesn’t cut it, even with — or
especially with — lifelong friends. Make sure
everything is in writing if you opt to invest so
there’s no confusion down the line.
ALWAYS, ALWAYS STUDY THE BUSINESS
PLAN
Examine the business plan to see if your friend has
thought through all aspects of the business.
A thorough plan should include financial
projections, current revenue, five-year projections
and a detailed market analysis that outlines
competitors and potential obstacles.