Invest in companies: what should be evaluated

Do you want to enter the business world, but are you afraid to start alone or do not have enough capital? A good alternative may be to invest in other people’s companies, entering as a minority partner.

But investing in third parties can be more risky, since you will not have direct control over the venture, especially when you do not know the business in which it will be invested. Next, look at four issues to evaluate well before making investments in companies.

Ask the following before investing in companies recommended by Envestio.

1. What is the strategy of the company?

Before investing in companies, you must study well what are the strategies of these companies. Ask some questions:

Why should a consumer buy this product and not the competition? Is there a segment of the market large enough to value the differentials that are offered in relation to the competition? How will this segment of the market be profitably achieved?

If you cannot identify positive answers to these questions, it may be better to give up on making this investment.

2. Why does the owner need money?

If the business owner needs your investment, it is because he wants to use the money in some other objective. Many times, understanding these reasons can prevent a bad investment or ensure that the opportunity is really good.

If you need the money to pay salaries, this indicates that the company is not self-sustaining. On the other hand, if the objective is to expand and make investments, the possibility of return is greater.

3. Does the owner have an entrepreneurial profile?

Forget about the product. Would you invest in a company with no commercial profile and no experience in administration? Probably not.

But, many people end up embarking on an attractive project and they may even have good business plans, but they are shipwrecked at the end because the administration was wrong. Therefore, before investing in companies, it is important to evaluate the profile of who will be directly responsible for the management of the company.

4. Will you be compensated?

Making an investment in someone else’s company is not a guarantee that you will have money in the future, even if the venture is lucrative. On the contrary, this will depend on the owner of the company that controls the decisions and the agreement they make.

For example, you make an investment in a company and the owner never sells the company, never distributes dividends (on the contrary, increases your personal remuneration) and passes the control to the next generation of the family and you can be left with nothing. So it is vital that before investing in the company, sign a contract that guarantees you some kind of participation in the benefits.

Remember, as a minority investor, you will have little participation in the decisions of the company. Then guarantee this aspect before embarking on the business.