Money Matters: Investing in the Right Investor
By Nina L. Kaufman, Esq

Investors may seem like guardian angels, but they are definitely worth investigating. Expectations - and emotions - run high in these relationships. Therefore, invest the time to ensure that that "too-good-to-be-true" investor really is just that:

1. Do a reference check. Although investors may come through referrals, be sure to delve into their backgrounds. Make sure that there are no red flags like criminal records, bankruptcies, or multiple lawsuits. Also look for inconsistencies in the data you receive.

2. Run a "personality test". Some investors want a good return on their money; others seek status; some genuinely like your industry. Listen carefully to the questions asked. What role does he claim to want to play? Does he have a personality you can enjoy working with? Or does he come across as a micromanaging nightmare?

3. Clarify roles, duties and expectations. Strike a fair balance between giving the investor comfort that her money is well invested and giving you the freedom to keep running the business. How often does the investor have the right to see financial reports? May the investor participate in the day-to-day management of the business? Put it all in writing; don't rely on memory alone.

4. Avoid "ostrich" syndrome. It's tough to confront someone who has just given your business a significant cash infusion. When things go awry - such as in the case of a busy-body investor - have that difficult conversation immediately, so that bad patterns do not become engrained.

5. Don't go it alone. Taking on an investor is a momentous decision. Assemble a good team to handle the details you may not have considered. This includes the background/due diligence checking, accounting, and legal help.

Engaging an investor who's a bad fit can set back your business goals and finances. Invest the time in the investor so that you make the right choice.

© 2004-2008 Ask The Business Lawyer LLC. Nina L. Kaufman, Esq., is a business attorney and the President of Ask The Business Lawyer LLC, which offers easy-to-understand business law resources that protect small businesses and save them money. To learn more, and receive our FREE "Words to the Wise" ezine, visit www.WiseCounselPress.com or contact Wise@AskTheBusinessLawyer.com. This article is for your general information only and is not intended to substitute for the specific advice of legal counsel.

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