lot of networking and research – or a dedicated feed of promising businesses. Make Sure the Investment Is Worth It Second, an investor must always do their due diligence. In this context, due diligence refers to business insight, too, only in more detail. Before you invest in any business, you must make sure the investment is worth it by looking at its future business plan, model, and strategy. As an investor, you need a holistic picture of the market, industry, and financial projections. Understand that Investing Implies Risk Even with all due diligence, there’s always a certain percentage of risk that investors must count in. The biggest one, of course, is losing all the money. If the new venture fails, you might not be able to get your money back for years because your investment will stay illiquid, or you might not get it back at all. That’s why investment experts always recommend diversification. In simple terms, diversifying your portfolio means making different kinds of investments. Your portfolio should include various types of markets, industries, and businesses. That way, if one of them fails, the chances will probably be more favourable for the other ones. Diversification takes a lot of experience. Pick a Small Business Funding Avenue Both equity and debt investors have multiple funding options to choose from: • Direct investments Approaching the business you want to fund directly; • Indirect investments Investing through a professionally managed fund; • Online investments Via crowdfunding and coinvestment platforms. When it comes to small businesses, the most frequently used investment avenue is the fund called SBA Loans (Small Business Administration Loans). However, there are other funds and ways to invest in a small business, too, such as credit unions and banks. You can even invest using your business credit card. Meet the Best Investment Candidates Unless you’re a professional investor with a hectic schedule and a lot of experience, taking the time to talk to the entrepreneurs you want to fund is always a good idea. You should get to know the people behind the business plan and allow them to walk you through their assets and goals before you decide. Negotiate Terms and Close the Deal After carefully considering all the opportunities, risks, and options after you’ve done your due diligence and ultimately decided it was safe to make an official offer, don’t just start celebrating just yet. It’s important to navigate the negotiations well and go home with the best possible deal on your hands. Stay in the Loop with Your Investment When you finally do invest, there’s no rule saying that you need to stay invested in the ups and downs of the business you’ve just funded. As a key stakeholder, youmight get some control over the business or not. In any case, you shouldn’t shy away from being actively involved in its progress. Depending on how the wind blows, it might be a good idea to reinvest or flee. Conclusion Every first-time investor faces potentially ruinous temptations, and you will probably face them, too. Whether you take big risks and potentially reap big rewards or invest small and stay safe, due diligence is vital for success. Never underestimate the importance of insight and research. Inve s tmen t 52 Finance Monthly.
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