Although there is no magic formula for making successful investment decisions, certain factors are often considered particularly important by professional venture investors. How do you make proper decision as to whether to invest in a business?
Here are some key questions:
- How long has the company been in business? If it is a start up or has only a brief operating history, are you being asked to pay more than the shares are worth?
- Consider whether management is dealing unfairly with investors by taking salaries or other benefits that are too large in view of the company's stage of development or by retaining an inordinate amount of the equity of the company compared with the amount investors will receive. For example, is the public putting up 80% of the money but receiving only 10% of the company shares?
- How much experience does management have in the industry and in a small business? How successful were the managers in previous businesses?
- Do you know enough about the industry to be able to evaluate the company and make a wise investment?
- Does the company have a realistic marketing plan and does it have the resources to market the product or service successfully?
Many other questions may present themselves and you should be comfortable with the answers before committing your money to a company. Remember to investigate before you invest.
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