If you are looking for investment opportunities with significant returns, an Angel Investor may be for you. You invest a set amount of money to a business that is normally already established but needs capital for growth. In order to be successful in investing in small businesses, you will need to do your due diligence.
No matter what market you choose to invest your money into, you will need to do due diligence to ensure that your investment is secure. This does not mean that you are eliminating all risk, but rather you are minimising the risks involved. Effective due diligence means taking into consideration all aspects of the business proposal you are deliberating over and asking the hard questions.
You will need to research the people involved to ascertain if they share the same values as you, what their reputation within the industry is, and how involved the founding members are, among many other aspects. Research the product by finding out its USP (unique selling point), how the company addresses competition, and understand how it works. Research the company infrastructure to be sure that it is stable and has internal guidelines for every scenario.
Probably the most important part of due diligence is to understand the business’s financial structure. Make sure you know how the business plans on growth and if an actual plan is in place to ensure profitability. Know what projects are currently being undertaken and which projects are proposed and why those projects prioritised. Understand the company’s plan to be profitable, what returns you can expect, and if you can remove yourself from the situation within three to five years so that the company can run itself.
Make sure to do your research, read all you can on the company and industry, but also get together with founding members and visit the company headquarters.
While performing due diligence may seem like a lot of unnecessary work, learning about your possible investment will keep you clear of unstable businesses which will allow you to attain a greater ROI than the average investor.