Small Business Investing

Investing in a Small Business

What are some important dynamics of investing in a business that every investor should consider before making the investment?

A component of both the downside and upside risk is that when you invest in a small company, you are actually making an investment in and with the business’s founder or partner, who may remain, so the financial success of the company may be heavily dependent upon this person’s personality, and the dynamics of your relationship. Of course, as a new partner, after making the investment, you hope to add some value to the business and assert changes that might make the business more profitable over time. But the dynamics, positive relationship, and communication abilities of the partners is important to the success of the new entity. Partners need to share the same or similar short- and long-term goals for the business. If these goals are not shared and explicitly stated and agreed upon, risk of financial underperformance increases. It is very important to consider with whom you are partnering as much as what you are buying.


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