As long as we're talking about money...

...I'll take a little advice too.

I have an opportunity to make an investment in a small company growing rapidly. I can afford the investment, and the returns will be really good. Very conservative estimates would be more than 20X in 6-8 years. I am very confident in the return. I will have a sizable stake- only 4 investors. I can afford to loose it.

So what are the cons?

• The senior shareholder is my (potential) son-in-law-to-be. I trust him implicitly, and am really excited about what he is building. I am 110% confident it will do well, but there is still the "family" thing.

• I would probably not have an active role in influencing the decisions of the company. This is not my preference.

• There is a pretty good possibility I would be working for the company in some capacity in the near future. My skillsets overlap my SIL's. We would cover different territories, but I'd still be junior to him. Again, the "family" thing.

• The core business is one I do not have a background in.

• I am not completely keen on the investment team (including myself). I am not convinced the owners bring well-rounded management experiences as a group (though the goal is to sell the company ASAP).

The numbers are enticing, but if it was not my SIL, I wouldn't invest quite this much. My belief in the company is partly due to me personally researching the numbers, but also partly related to my personal relationship with him.

Thoughts?

My first thought would be, with 20x returns, how do I get in on this?

Obviously I don't know any details, but I expect that there are also potential "family issues" if you DON'T invest. The key piece of information I heard was the part where you said you could afford to lose all your money. In that case, and since your SIL isn't a flake, I'd go ahead and jump in.

HOWEVER, I would also get an understanding IN WRITING of what everybody's rights & obligations are regarding making decisions, being ready to listen to advice, etc. You might not be in a position to have a veto power, but you will want to at least have some way to keep Junior from driving off a cliff through inexperience or pigheadedness.

Maybe something along the lines of the rights of the British Sovereign: the right to be consulted, the right to encourage, and the right to warn.

And, yeah, 20X sounds pretty good.

Good points, Stealth. Thanks.

Stealthtercel wrote: Obviously I don't know any details, but I expect that there are also potential "family issues" if you DON'T invest.

No, I'm definitely good on that. There is no way we are going to let this get in the way of our relationship.

+1 on what Stealth said.

Sounds like a good opportunity. Be clear that it's a business partnership. Define clearly what the relationship is. If you can accept the risk that you might lose your full investment if things go south and wouldn't get pissed about it, I'd go for it.

Catatafish wrote: My first thought would be, with 20x returns, how do I get in on this?

That's about as far as I got, too.

Sorry, guys. I wasn't offering YOU the possibility!

In reply to Datsun1500:

Now you are the right track. Those are the questions most important to me.

I can afford to loose the money. I cannot afford to loose the relationship.

It is not just an idea at this point. It is a functioning small company with decent revenues going through a major change in leadership, about to become something pretty big. Everything is in place.

Good point on the investor/ employee issue. All I can say is that it is already established. 1 investor is already am employee, 2 definitely never will be. There are no secrets, but it has the potentil for awkwardness.

SVreX wrote: Sorry, guys. I wasn't offering YOU the possibility!

Oh yea? Well my brother-in-law is offering me 21x returns on his new investment. So ha!

In reply to Datsun1500:

It's not family money. It's my money.

You are right about the issue of me wanting some say in how the business is run. I shared that as a bit of a confession.

Clear written requirements concerning debt, death, and dissolution need to be outlined before you step into this as an investor. Even though you can afford this, can your new partners? What if they are short, will they go into debt? Who would carry that debt? Who's money goes to repay it? What's the plan if somebody croaks? What's the plan if the company folds?

Clear written requirements concerning separation of the boss - employee shoes and the father - son hats need to be established before becoming and employee.

Finally, if there is a gap in the previous two plans, you need to determine your authority as an investor versus your authority as an employee.

Am I going to be the only one who says that the expectations have been set too high and will not be met?

Pissing money away because family seems like poor reasoning. And the last money thread we had did not make it seem like you were in a financial position to just toss cash around?

Also, I find it cute of how everyone ignores that if this does go south there will be bad blood. That's called being human.

And finally, if it is so awesome, they can easily find other investors. If they can't, that's a sign someone has the rose colored glasses on.

Walk away if the relationship is important to you. If you can throw away the initial investment, you probably don't need the (unrealized and impossible to predict) gains. If you can't, there are safer strategies to invest in

In reply to HiTempguy:

Your points are noted.

I'm not sure what you are referencing, but suffice it to say that I have never given a very thorough picture of my overall financial picture to strangers on the Internet.

No expectations have been set. The numbers are based entirely on my analysis, and knowledge of the business.

Is it pissing money away? Maybe. But it is not because of family. I have had a business relationship with "SIL" for years- long before he showed an interest in my daughter. I approached him about a partnership years ago.

The purchase price is not based on unrealized gains. It is based on current value, at 1x- 1.25x annual revenues (reasonable approach to valuation). The gains (which are yet unrealized) are in fact unpredictable, like any other investment.

How would you know if this is a safe investment or not? I have not discussed the industry, or the opportunity.

Thanks for your thoughts. They are definitely helpful.

In reply to Datsun1500:

I sent you my number. I'd love to talk with you.

As usual Datsun1500 has great advice.

The only real thing I can add:

Family/friends + money = usually an uncomfortable situation

But I know you're savvy enough to have yourself covered, so if a 20x return is realistic, go for it!