By: Martin Thomas
As an investor, business opportunities are a great place to make maximum returns far superior to managed funds or the stock market. Many investors have a good eye for the business investment opportunity and therefore make some startling returns on their money with little more effort than signing the check once the due diligence is completed. Below is a series of things to look for in an upstart business that are signs of a good investment.
1) The pay off...
I always look at the upside first simply because that is what I need to know first before examining the risks. If there is not much upside potential due to a saturated market or what ever may be the reason, there is no need to waste further effort assessing the business. Believe it or not I want a return of 10 times or more annually. That is a 1000% return and I will tell you why and how I do this before you fall off your chair.
I invest small amounts and rarely over $10,000 this is small change to me and particularly safe because I know I will inevitably make mistakes and not every choice I invest in will pay off and I know I will lose my high risk investment maybe 2 times out of 10.
I often don't invest more than a few hundred dollars and for this reason I have my line in the water so to speak and play the odds. If it dies, so be it...on the other hand I might have just bought a 5% steak in the next Microsoft! You never know and commonly the truth is somewhere in between.
2) The risk
The risk is an obvious consideration and the downside has been adequately taken care of by my strategy outlined above. I don't want to lose a single cent, but I am able to play aggressively because I use small amounts and shoot for high returns in any business investment opportunity.
3) The management
Will they be around in a year? What kind of people are they and more importantly, the decision makers, what is their past track records.
4) Current Assets of the business
If the business has assets, this can be a good way to secure your investment capital. You may try negotiating hard on your percentage steak and then give back a few percentage points back to the investment in exchange for some equipment of value or other tangible assets. In this way your investment can be salvaged if things go south of the border.
5) Exploring the industry
Apart from taking a micro look at the business you are preparing to invest in you may want to stand back and take a look at the big picture. What is the future of the industry, what kinds of challenges does the industry face and what are the future prospects. This is ideally for the long term investment but should also be looked at for short turn around investments (under 5 years)
6) Speed of returns
Making 1000% in under a year is far better than making the same amount over 5 years. Speed of returns is what investment is all about so never be absent about being aggressive on your returns, when a start up is desperate for cash, they usually know that cash and the purpose for it will make them incredible money, otherwise they wouldn't risk it themselves. So be aggressive, often they will look at your deal as a way of getting the money fast and will often give you all the available profits for the first year so they can then continue without you after you have been paid. Get as much as you can!
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