A Person Invests Money or in a Business: Key Considerations and Strategies

Investing money or a business can be a daunting task, but understanding the key considerations and strategies can make all the difference.

Before investing, it's essential to set clear financial goals, such as increasing income or building wealth.

A well-defined investment strategy, like diversifying assets, can help mitigate risks and maximize returns.

There are different types of investments available, including equity and debt investments. Equity investments typically involve a higher degree of risk.

Debt investments, on the other hand, are generally considered to be less risky. Investors may be willing to accept a lower return on debt investments compared to equity investments.

The type of investment is one of the most important factors in determining what investors consider a fair percentage.

Debt investments are generally considered lower risk than equity investments, as the investor is guaranteed a fixed return on their investment.

The potential returns on debt investments are lower than equity investments, which is a trade-off for the lower risk.

Debt investment involves acquiring a significant amount of debt with the expectation of repayment with interest in order to invest in a company or project.

This type of investment is less risky than equity investment because the investor is guaranteed a fair percentage.

Debt investments involve lending money to a company or individual in exchange for a set rate of interest.

Investors may be willing to accept a lower return on debt investments due to the lower risk involved.

Choosing the right type of investment account can be a bit overwhelming, but it's a crucial step in getting started with investing.

You'll need some personal information, including your social security number, to open an account.

It'll probably take around 20 minutes to open the account, and with some brokerages and robo-advisors, it can take a few days to connect your bank account.

Some popular investment accounts include a Roth IRA, which comes with significant tax benefits, and a standard brokerage account, which does not.

Here are some details about three popular investment accounts:

These are just a few examples, and there are many other types of investment accounts available.

A startup entrepreneur should be aware that their company may obtain funding from a variety of sources. Sources of funding for start-up founders include friends, relatives, and angel investors.

Seed money is typically provided by friends, relatives, and angel investors to help a company pay for the development of its product and business strategy. This initial funding is crucial for a company's growth and success.

The stage of development of your business can affect what investors consider a fair percentage. If your business is still in the early stages of development, investors may expect a higher percentage to compensate for the increased risk.

Venture capitalists are people or organizations offering funding for a business's launch. They are often large companies that can manage greater risk and seek a more significant return on investment than standard investments.

Venture capital investments are made by firms or individuals who invest in early-stage companies with the potential for high growth. These types of investments are typically high-risk, high-reward.

A venture capitalist is charged with finding a relatively small number of investments to make over a seven to 10-year period. They typically target high-growth startups.

Founders should do extensive research to determine what types of investments a venture firm makes and whether or not they have any connections with that firm. This research will help them find the best possible fit for their deal.

As you invest money or resources in a business, you'll need to consider ownership and control. Ownership can be transferred through buy-outs, where the investor's shares are repurchased at a predetermined price. This can be a good option if you want to regain control of your business.

Giving up ownership is a significant decision, and you should consider the percentage of ownership carefully. Typically, angel investors expect between 20-25% of your company's profits, while the standard offered by most companies is 15% equity in a capital round. However, you can propose a series of smaller raises if the investor negotiates for a higher proportion.

You should also have clear corporate governance procedures in place to ensure effective management and compliance with laws and regulations. This may involve creating a board of directors, establishing committees, and developing policies and procedures for financial reporting and decision-making.

Equity involves exchanging money for partial ownership of a company, and can also take the form of an initial public offering (IPO).

Investors can purchase ownership in a company in exchange for a share of the profits, which are typically high-risk, high-reward investments.

Private equity firms are associated with growth capital, not startup capital, and are typically reserved for companies that have already grown to a larger size.

Private equity firms usually look for later-stage companies that require larger sums of money, often at least $5 million, and already have assets to leverage as investment opportunities.

Giving up too much ownership can be a mistake, as advisors suggest that startups should consider giving somewhere between 10 and 20% of ownership to investors.

Investors will generally require stock in your firm to stay with you until you sell it, but you may not want to give up a portion of your business.

Repaying a loan by swapping debt for equity shares can give the investor a proportionate ownership of the business equal to their investment.

A fair percentage for an investor can vary depending on the type of investment, level of risk, and expected return, with angel investors typically expecting 20-25% of company profits.

Having clear corporate governance procedures in place is crucial for effective management and compliance with laws and regulations. This involves creating a board of directors to oversee the business.

A well-structured board of directors is essential for making informed decisions and ensuring that the business is managed effectively. They should establish committees to handle specific tasks, such as financial reporting and decision-making.

Establishing committees can help to distribute the workload and ensure that important tasks are completed efficiently. For example, a finance committee can oversee financial reporting and budgeting.

Developing policies and procedures for financial reporting and decision-making is also vital for maintaining transparency and accountability. This includes creating a clear framework for reporting financial information and making key decisions.

Having clear policies and procedures in place can help to prevent errors and ensure that the business is run smoothly. It can also help to build trust with investors and stakeholders.

Investors will consider the level of risk associated with your business when determining what constitutes a fair percentage. If your business is in a high-risk industry or is still in the early stages of development, investors may expect a higher return on their investment to compensate for the increased risk.

High-quality bonds, such as Treasury bonds, offer predictable returns with very low risk but also yield relatively low returns of between 4% and 5% (as of late 2024), depending on the maturity term you choose and the current interest rate environment.

Investors will also consider the expected return on their investment when determining what constitutes a fair percentage. If your business has the potential for high growth and profitability, investors may be willing to accept a lower percentage in exchange for a larger return on their investment.

There can be huge differences in risk even within the broad categories of stocks and bonds. For example, a Treasury bond or AAA-rated corporate bond is a very low-risk investment.

A high-yield bond can produce greater income but will come with a greater risk of default. In the world of stocks, the spectrum of risk between blue chip stocks, like Apple (AAPL 0.67%), and penny stocks is enormous.

One good solution for beginners is to use a robo-advisor to formulate an investment plan that meets your risk tolerance and financial goals.

Your business model is a key factor in determining what constitutes a fair percentage for investors. If your business has a proven track record of generating revenue and profitability, investors may be willing to accept a lower percentage.

Knowing your business inside and out is crucial before entering into any negotiations with investors. You should be able to articulate your business model, explain how it will generate revenue, and provide evidence that supports your claims and demonstrates potential for growth.

Market conditions can also impact what investors consider a fair percentage. If the market is favorable and there's high demand for investments in your industry, investors may be willing to accept a lower percentage.

Your business model is a crucial factor in determining what investors consider a fair percentage. It's essential to have a proven track record of generating revenue and profitability.

If your business has a strong track record, investors may be willing to accept a lower percentage in exchange for a stake in a successful company. This is because investors are more likely to take a risk on a business with a proven model.

Investors will consider your business model when determining what constitutes a fair percentage. A clear understanding of your business model will help you articulate your vision and demonstrate potential for growth.

Having a clear business model will also help you negotiate with investors, as you'll be able to explain how your business will generate revenue and why it's worth investing in.

When you're considering a repayment plan for your business, it's essential to understand your options.

For commercial loans or short-term investment contracts with payment assumptions, making regular monthly payments or paying all at once to the investor for the loan and interest due is a viable option.

You can pre-arrange your terms to ensure priority payback, giving the investor a clear understanding of when they can expect to be repaid.

This approach can provide peace of mind for both parties involved, allowing you to focus on growing your business while knowing your repayment obligations are taken care of.

Repaying at a preferred rate can also help you manage your cash flow and avoid costly penalties or interest.

Competition can make or break a business, and investors take notice. If your industry is crowded with many competitors, investors may expect a higher return on their investment to compensate for the increased risk.

In a crowded market, investors may demand a higher percentage to account for the added competition. This is because they perceive the risk of investing in a business with many competitors as higher.

Having a unique value proposition can help your business stand out in a crowded market. This can make your business more attractive to investors who are looking for a competitive edge.

If your business is operating in a niche market with few competitors, investors may expect a lower return on their investment. This is because the risk of investing in a business with fewer competitors is perceived as lower.

Investors often look at the competitive landscape when evaluating a business. They want to know if your business has a clear advantage over its competitors.

Negotiating with investors should be a two-way conversation where both parties are willing to make concessions where necessary. This collaborative approach increases the chances of negotiating a fair deal that benefits both parties.

Be prepared to listen to the investor's concerns and feedback and be open to adjusting your proposal to accommodate their needs. Remember that negotiations with investors should be a collaborative process, and both parties should be working towards the shared goal of making a profit.

Don't make costly mistakes by being unaware of common pitfalls. Some of the most common mistakes to avoid when negotiating with investors include not being prepared, underestimating the investor's concerns, and not having a clear proposal.

Keep in mind that investors will be looking for the best possible return on their investment, while entrepreneurs will be looking for a deal that won't hurt their company's cash flow. This is why it's essential to keep the shared goal of making a profit in mind during negotiations.

Having a clear and detailed investor agreement in place is crucial before accepting funding. This agreement outlines the terms of the investment, including the amount, the percentage of ownership, and the rights and responsibilities of the investor.

To determine a fair price for your business, you need to value it first. Valuation is the total worth of your business, including all assets, intellectual property, and future earnings potential.

There are several methods for valuing your company, including the Comparable Transactions Method, which involves analyzing the sale prices of similar companies in the same industry. This method can give you a good idea of what your company might be worth by comparing it to others that have been sold recently.

Overvaluing your company is a common mistake that can turn off potential investors and make it difficult to secure funding. Be realistic about your business's value, as it's crucial to be confident without being unrealistic.

The Discounted Cash Flow Method involves projecting the future cash flows of your business and then discounting them back to their present value. This method assumes that the value of your company is equal to the present value of all future cash flows.

Accepting funding for your business comes with legal implications. You'll need to consider the legal implications of accepting funding, including registering your securities with the appropriate regulatory agencies or qualifying for an exemption from registration.

Securities laws regulate the offer and sale of investments, including stocks, bonds, and other securities. Failure to comply with securities laws can result in significant legal and financial consequences.

Securities laws regulate the offer and sale of investments, including stocks, bonds, and other securities. These laws require that companies register their securities with the appropriate regulatory agencies or qualify for an exemption from registration.

Companies must comply with securities laws to avoid significant legal and financial consequences. Failure to do so can result in fines, penalties, and even the loss of business.

Securities laws are in place to protect investors and maintain fair market practices. They ensure that companies provide accurate and transparent information about their investments.

To register securities, companies must file detailed documents with regulatory agencies, such as the Securities and Exchange Commission (SEC) in the US. This process can be complex and time-consuming.

When you're considering investment funding, it's essential to understand the potential tax implications for your business.

Accepting investment can have significant tax consequences, including reporting requirements.

You'll want to consult with a tax professional to grasp the full scope of these implications.

Angel investments are typically high-risk, high-reward investments that depend on the success of the company.

To get started, you'll need to have a high-net-worth status, which means you'll need a significant amount of money to invest.

Angel investments are made in exchange for partial ownership of the company, so be prepared to give up some control.

The potential returns on angel investments can be significant, but investors also risk losing their entire investment if the company fails.

It's essential to carefully consider the risks and rewards before making an angel investment.

To get started, you need to have a solid business plan in place. A well-thought-out plan will serve as the foundation for your pitch deck, helping you to articulate your vision and goals.

Negotiating with investors can be a complex process, so it's essential to be prepared. Seeking out professional assistance where necessary can make a significant difference in the success of your pitch.

Working with a reputable pitch deck agency can help you to prepare a professional pitch deck that accurately reflects your business and its potential. This will give you a competitive edge and increase your chances of securing funding.

By taking these steps, you'll be well on your way to creating a strong foundation for your business and setting yourself up for success.

Before you start reaching out to private investors, it's essential to get all your materials together. Failing to prepare is one of the biggest mistakes entrepreneurs make, and it can lead to stalled negotiations.

Having a clear understanding of your business, its strengths, and its weaknesses is crucial. This will help you navigate negotiations with confidence.

You should also have a clear idea of what you want to achieve from the negotiations and what you're willing to concede. This will help you stay focused and make informed decisions.

Seeking professional assistance, such as working with a reputable pitch deck agency, can also be beneficial. They can help you prepare a professional pitch deck that accurately reflects your business and its potential.

Stalling for weeks to scramble to put materials together after an investor has requested a pitch is not a good idea. It's better to be prepared beforehand, so you can confidently present your business and its potential.

The first response from an angel investor is usually a short "no" or a request for more information.

Most angels will ask for either an executive summary or a pitch deck.

The investor isn't interested in gathering a lot of information at this point, just to understand if the business has potential for a profitable return.

They're looking to determine if they want to spend more time with the company and its founder.

It's not a good idea to share every last piece of information you have, as this can overwhelm them.

Angel investors are likely reviewing a dozen other deals at the same time, so they can't review a lot of information even if they wanted to.

Founders should simply let them know that more information is available upon request.

If you have access to an employer-sponsored 401(k), it's a great option because many plans offer a match. Employer matches are basically free money. A 4% match means your employer will contribute $4,000 if you contribute $4,000 to your 401(k). This can add up quickly, especially if you make a higher income. For example, if you make $100,000 a year, a 4% match can be a significant boost to your retirement savings.

Index funds are a great way to invest, as they track a particular index and can provide a diversified portfolio. You can get a fast introduction to index funds here.

Crowdfunding is another option, where a large number of individuals contribute small amounts of money to fund a business or project. This type of investment is generally considered lower risk, but the potential returns are also lower.

You can find private investors through your network, or use websites like Angel Capital Association, AngelList, Angel Investment Network, Funding Post, and Gust. Investment events are also a good way to connect with angel investors in person.

Here are some sources of funding for start-up founders:

Crowdfunding is a great way to raise funds for a business or project. It involves soliciting modest donations from a large number of individuals.

You can use platforms like Kickstarter or IndieGoGo to run a successful crowdfunding campaign. These sites have a large user base and can help you reach your target audience.

The beauty of crowdfunding is that it spreads the risk among many people, making it a lower-risk investment option. However, the returns on investment are generally lower than other types of investments.

Crowdfunding allows you to test the market and gauge interest in your project before investing too much time and money. It's a great way to validate your idea and build a community around your business.

If you're looking to connect with angel investors, you'll want to start by leveraging your personal network. This is often the best way to get your foot in the door, as it's a personal connection that can help build trust.

Websites like Angel Capital Association, AngelList, Angel Investment Network, Funding Post, and Gust can also be a great resource for finding angel investors.

If in-person events are more your style, searching for "angel investor events" in your region can lead you to opportunities to connect with investors in person.

Angel investor events often take place in the Bay Area, but you can also find events closer to home by searching online.

Here are some websites to consider for accessing angel investors:

To find venture capital firms, it's essential to make a smart introduction to the firm that aligns with your startup's needs. This means doing extensive research online and through your existing networks to determine what types of investments a firm makes.

Knowing the exact profile of a venture capitalist can help you determine which level of introduction makes sense, typically starting with an introduction to an associate and then working your way up to the full partnership.

Investing in individual stocks can be a thrilling way to grow your portfolio, but it's essential to understand the risks and rewards. A general rule of thumb is to keep individual stocks to a small portion of your investment portfolio.

To invest in individual stocks, you can buy a single share or a few shares as a way to dip your toe into the stock-trading waters. This approach requires significant research and investment.

A diversified portfolio made up of many individual stocks is possible, but it takes a lot of work. You can research stocks to find the right companies to invest in, but remember that individual stocks will have ups and downs.

The upside of individual stocks is that a wise pick can pay off handsomely, but the odds of making a fortune are slim. Most investors, particularly those investing for retirement, prefer to invest through funds, which are inherently diversified and reduce risk.

Here are some key points to consider when investing in individual stocks:

Keep in mind that individual stocks are unlikely to rise in meteoric fashion like some mutual funds might.

Investing in stocks can be a great way to grow long-term wealth, with an average annual return of about 10% over several decades. This is because the stock market has proven to be one of the best ways to achieve long-term wealth.

To get started, it's essential to focus on investing for the long-term, rather than trying to beat the odds with day trading. Avoid the habit of compulsively checking your stocks, as this can be detrimental to your portfolio's health.

You can start by opening an online brokerage account and purchasing stocks or stock-based funds through it. You can also consider investing through a robo-advisor or a financial advisor. The key is to follow a solid investment strategy, which involves managing your stock portfolio and making adjustments as needed.

Here are some key considerations for managing your portfolio:

Ultimately, a successful investment strategy involves being patient, disciplined, and informed, and sticking to the basics of stock market investing.

Research is key when it comes to negotiating with investors. You should be aware of the current market conditions and the typical terms of investment deals in your industry. This will help you to determine what constitutes a fair deal and avoid being taken advantage of.

It's also essential to conduct due diligence on the investor to ensure that they are a good fit for your business and that their funding is legitimate. This may involve reviewing the investor's financial statements, credit history, and legal history, as well as conducting interviews and background checks.

As a founder approaching angel investors or venture capitalists, it's crucial to have a solid pitch and to follow the process outlined by the investor or VC firm. For angel investors, a founder can follow a process that involves networking and cold outreach, while for VC firms, a founder should follow a documented process.

Researching the market and the investor will help you to make informed decisions and avoid potential pitfalls. By being prepared and doing your homework, you can increase your chances of securing a fair deal and growing your business successfully.

Here are some key things to consider when doing your research:

By considering these factors, you can make informed decisions and navigate the investment process with confidence.

Making with AI is a growing trend that's worth exploring. Many people are turning to AI to make money, rather than worrying it'll take their jobs.

While some may think AI is a threat, others see it as a powerful tool to generate income. The idea of harnessing AI's power to make money is becoming increasingly popular.

AI can be used to create new business opportunities, such as developing AI-powered apps or services. This can be a lucrative way to earn a living, especially for those with technical skills.

Making money with AI is not just about creating new businesses, but also about automating existing ones. By streamlining processes with AI, entrepreneurs can increase efficiency and reduce costs.

You can invest a significant portion of your portfolio in stock funds, especially if you have a long time horizon, up to 80% if you're 30 years old investing for retirement.

Individual stocks are a different story, and a general rule of thumb is to keep them to a small portion of your investment portfolio.

You can start investing in stocks with a relatively small amount of money, depending on the share price, which can range from a few dollars to a few thousand dollars.

Some brokerages allow you to invest with fractional shares, so you can choose a dollar amount and invest that, even if the share price is greater than what you have.

If you want mutual funds but have a small budget, an exchange-traded fund (ETF) may be your best bet, as they often have lower minimums, sometimes less than $100.

Repayments at a Preferred Rate can be arranged according to your pre-arranged terms.

You can prioritize payback to the investor, ensuring they receive their share of the loan and interest due.

This method is ideal for commercial loans or short-term investment contracts.

By making regular monthly payments or paying all at once, you can fulfill your repayment obligations.

You can allocate a fairly large portion of your portfolio toward stock funds, especially if you have a long time horizon, with 80% of your portfolio in stock funds and the rest in bond funds.

The amount of money you need to buy an individual stock depends on how expensive the shares are, with share prices ranging from just a few dollars to a few thousand dollars.

Some brokerages allow you to invest with fractional shares, meaning you can choose a dollar amount and invest that despite the fact that the share price might be greater than what you have.

Mutual funds often have minimums of $1,000 or more, but exchange-traded funds (ETFs) trade like a stock and can be purchased for a share price, in some cases, less than $100.