Connect the capital with the business plan
A business may seek capital to expand production, enter a market, acquire a competitor or provide an ownership transition. These purposes create different demands on management and different risks for investors.
Examine cash as well as revenue
The assessment should connect the proposed spending with observable business outcomes. Revenue growth alone may not produce cash if working capital, costs or further investment absorb the benefit.
Read the ownership terms
Ownership terms matter. New investors should understand voting rights, access to information, the possibility of dilution and what happens if the business needs additional funds.
Give the exit a realistic horizon
An eventual sale can be a possible exit, but its timing and terms are uncertain. A private business investment belongs within a capital plan that can accommodate a longer and less predictable holding period.
- Explain what the capital is intended to achieve.
- Assess management execution and cash conversion.
- Read control, information and dilution provisions.
This perspective is general information. Consider the relevant documents and your circumstances before making an investment or finance decision.