Should You Invest In Your Friend’s Startup?
Whether or not you should invest in your friend’s startup is quite a complicated matter. It is really important that you think about this thoroughly. In so many cases friendships are simply destroyed by the fact that the startups do not go well. You want to be sure that you make a sound decision and that you do not think in the heat of the moment. So many just want to help friends and end up in huge problems. You do not want to be faced with huge problems so before you are going to invest in the startup of the friend, be sure you ask the following important questions.
Did You Do Something Like This Before?
Did your friend grow and then exit a company in the past? When the answer to this is yes, there is a pretty good possibility that even if mistakes happened, the friend learned. In the event that the friend has no business experience, there is a pretty good possibility that the business will fail.
Do You Know The Timeline?
In the event the friend has a business plan that is well-thought-out, the next step is seeing if the timeline is properly taken into account. You want to both agree about the business vision and truly know what should be expected in the future. Try to write down the timeline of business growth and see if all is feasible.
Tell Me The Real Risks
No matter what some may tell you, it is practically impossible to be guaranteed a huge financial success. You want to be sure that the investment is smart and that you are ready to deal with the possibility of losing. In the event that you cannot lose the money you are to invest, you should never invest. The friend has to be transparent and needs to tell you everything about the associated risks. When the friend is upfront about all risks, it proves thoroughness and thoughtfulness. That normally leads to a great ROI and it shows adaptability.
Are There Other People Investing?
The startup investments are pretty difficult to predict. If this is the investment you want to make, make sure that you see if there are also others that are interested. If you are the only person out there that will back your friend, it practically means that you open the door to huge potential problems. The financial decision will surely not be a smart one.
Did You Put Money In The Business?
Can you trust a person that recommends some sort of financial investment that he/she does not invest in? The fact that the friend is willing to risk financial well-being for the startup is normally an indicator that everything will go smoothly since the friend will definitely fight as much as possible for success.
Will This Affect The Friendship?
The investment may be successful or not. However, the friendship needs to remain intact, right? Because of this, youw ant to sit down with the friend and discuss practically everything associated with the startup. If the friendship will be negatively affected, it is better not to invest. A clear line needs to be put between professional and personal lives. Strategizing together helps keep the friendship alive.
Will This Happen Full Time?
The commitment level associated with the startup is vital in making a decision. You want to be sure your friend is 100% committed. There are friends that start projects and then never finish. When starting a business and everything is done full time, dedication comes in. That can help out so much at the end of the day. Try to invest only when friends will work full time on the new business.