A Quick Recap

A Quick Recap

To help you get started, here’s a quick recap of the process:

  1. Look at your big picture financial situation and make a list of your Investing rules, which tell you what kinds of local investments you should be looking for.
  2. Be patient while looking for investing opportunities.  Don’t jump on the first investment to come along, don’t let anyone rush you into investing quickly, and don’t worry if it takes a long time, even years, to find the right local investment.  Investing is a long-term proposition.
  3. Once you find a promising investment, recruit or join a team to help you with the due diligence process.  Your team can consist of other local investors, knowledgeable friends or family, and/or trusted professional advisors.  They can help you throughout the process, or review your work after you’ve done it.
  4. Do your due diligence.  Be sure that the concept of the investment makes sense to you.  Understand the industry that the business is a part of.  Research the management team, so that you know who is involved, their skills, experience, character, and reputation, and any risks there are with the team, such as dependence on a single key person.  Evaluate the financial aspects of the business, including both historical financial statements (when available) and projections, making sure you question the assumptions and the methods that were used to generate them.  Examine the deal structure, as evidenced by the investment legal agreement or prospectus, to ensure that the key terms and big picture are to your satisfaction.
  5. Do a final review, reflecting on all the information you’ve gathered and analyzed.  Have you considered all the relevant scenarios?  Does the investment fit with your investing rules?  Do you have any unanswered questions?  Do you have good communications with management?  What does your due diligence team think; are they investing?  What does your intuition say?
  6. Make your decision.  If you’re proceeding, sign the agreement and write the check.  Congratulations!
  7. Monitor your investment.  Stay in touch with the investee, review any financial statements and other updates you receive, and make sure you are receiving what’s due to you.  Offer support and be on the lookout for potential problems (and solutions) that you can help with.