Monday, September 2, 2013

A friend asked me to invest on his idea

I had friends asked me for money because they simply needed it... more like a loan... but this is the first time somebody asked me to invest on their idea. We are talking here about a serious enterprise, with good professionals behind, which easily pass the simple questions covered by a full business plan, they got full law documents, 2 rounds of funding, small bank loans, potential very serious customers (with backing letters of intent), and big upside.

At the time of writing this I am not thinking to invest on the company. The following is just a list of thoughts that went through my mind and my reactions:
  • I don't understand the idea well. It is in the Internet field, where valuations are difficult to comprehend and many times myself asks "why Facebook paid $1B for Instagram..."?
  • I have never done such a thing. I would like to invest but this may be too risky to be the first and if it fails, it will kill my appetite to invest again, which would be counterproductive.
  • I am afraid that this could be the first round, but may need further investments later to keep things going...
  • This is the 2nd round of an old idea. Completely remodeled though, has little to do with the initial one... but I tried to use that one and I did not like it. Now  I still remember that feeling... although I know that this person has learn a lot for 2 years since the other idea was launched and also that they can fully reuse all that technology, which is a huge advantage.
Also, I am documenting myself on how to go about this kind of thing, when a friend or relative asks you for an investment. Searched the web and found this. Gives you some view on how other people treats these...

I also tried to become more of an expert on the idea, to try to evaluate it better. But can I really get anywhere meaningful? I think I came up with good feedback to turn it down, but certainly something could still get me if I had decided to invest. I.e., I can't become the expert in 2 days, but this is the reaction typical of an engineer, try to wrap your brain around to understand everything and get to the best possible conclusion.

Anyhow, I still hope he succeeds, but at this time, I will just pass...

PS.: And a view from the other side... what if you want to ask for people to invest on your idea? I think those are good suggestions...

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