Questions To Ask Yourself Before Investing In Someone Else’s Business

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Often successful entrepreneurs become interested in investing in other companies.  Not just the stock market.  They are curious about the role of private investor or angel investor.  What would it be like to be a member of the board of another company and have some “skin in the game” but NOT have to run the business on a day-to-day basis?  The process of screening potential investments, learning new roles, doing due diligence, and taking some chances is very enlightening for entrepreneurs.  Becoming an outside investor is a career change for some. You aren’t just evaluating the companies, you learn about yourself, your security/risk ratio, your skills to influence decisions, etc.  Many never realized the complexities involves with board service. Some, who thought they knew a great deal, start to recognize the limitations of their experience having only led one midsized company.

Here’s an excerpt from an email I recently sent to a client who is venturing into the world of “private investor.”  See if any of the questions I posed for him resonate for you:

Apparently, you can see that XYZ is well positioned for growth, is in a rapidly expanding industry, and their products/services provide superior value.  Your emails suggest that your primary questions, at this point, are more about how an investment in XYZ should be structured.

 

  1. Ask yourself how much money you are interested in earning from your interaction with XYZ, Inc. over what period of time. Is this a 5X, 7X, or 10X opportunity?
  2. How much money are you willing to risk on XYZ over what period of time? How much of your time and effort are you willing to invest?
  3. See if you can quantify your value to them.  Would having your input reduce their need for a full time (real) CMO, COO, CFO, or CIO for a while?  Would your influence result in more revenue? More profit?
  4. What part of the earnings you hope to achieve (see #1 above) can come in stock (to be turned into money at a time of your choosing) and what part should come as payment to you for board (influence, pressure, advice, C level counsel) participation?
  5. How many shares of stock you get is driven by the valuation and the investment you make.  How much stock would you need in order to influence results?
  6. What valuation process do you prefer and trust?
  7. Would you base all of this on today’s valuation, the projected valuation for 5 years from now, or a combination?
  8. Since leadership seems to be your primary question, what can you do up front to learn more before investing? 
  9. What would you do if, in a few years, you concluded that another person should become the President? As a board member, that subject is always open for discussion (is the primary responsibility of the board, frankly).  When you speak with other board members before investing, listen carefully to their reactions and responses when you ask direct questions about the quality of leadership that is currently in place.
  10. Try to take charge of this process so you see how the executive team responds. We’ll have phone conversations, exchange emails, edit drafts. But start with YOUR numbers. Ask your questions. Enjoy surfacing what seems important to you. This is about money, but it’s also about your life, your interests, your skills, what you want to learn, if it complements other things you are doing, and with whom you wish to be associated. 

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search.  2013 is Ambler’s 9th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr.) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

About Aldonna Ambler:
Known as The Growth Strategist®, Aldonna Ambler built and grew a suite of companies to help midsized B2B companies achieve accelerated growth with sustained profitability® A Certified Speaking Professional (CSP), Ambler has addressed over 2000 audiences and hosted a syndicated online talk show about growth strategies for 9 years. As a growth financing intermediary, Ambler raised over $1 Bil dollars for midsized companies. The winner of over 2 dozen prestigious national and statewide "entrepreneur of the year" awards, Ambler is available to speak about “profitable growth during any economy” and/or serve on the board of a growth-oriented privately-held company.

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