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Dear Vanessa,
My husband and I are both in our late 50s and have worked hard to get ourselves into a reasonably comfortable financial position.
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husband → publish → position
We own our home, still have a mortgage, have retirement savings and about $250,000 in savings outside of that.
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We → own → that
My husband's best friend of more than 30 years owns a successful business and has asked us to invest $100,000 to help fund its next stage of growth.
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friend → own → growth
In return, we would receive equity in the business.
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we → receive → business
My husband thinks it's a fantastic opportunity.
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it → think → ?
He knows the business well, completely trusts his friend and believes we could make far more from the investment than we are earning with the money sitting in the bank.
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we → know → bank
It's almost half our savings and we're at an age where I don't feel we have decades to recover if something goes wrong.
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something → feel → decades
Money educator Vanessa Stoykov (pictured) gives advice to a woman who is worried about her husband's investment idea
I also don't understand how we know what the business is really worth, what our shares would actually be worth or how we would ever get our money back if we needed it.
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we → picture → it
What happens if the business struggles, we disagree about something or we lose our money?
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we → happen → money
My husband says I'm letting fear get in the way of a great investment opportunity.
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fear → say → opportunity
I think he's letting friendship cloud his judgement.
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friendship → think → judgement
How do we decide who's right?
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who → decide → ?
Dear Nervous Investor,
There's one question I'd want you both to ask before you do anything else.
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you → be → anything
If a complete stranger walked through your front door tomorrow and offered you exactly the same investment, would your husband still want to hand over $100,000?
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husband → walk → 100,000
Vanessa says there's a really important question the couple need to answer before they go ahead and invest $100,000 in their friend's private business
Because friendship might be the reason you heard about this opportunity, but it shouldn't be the reason you invest.
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you → say → opportunity
Investing in a private business can absolutely create wealth.
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Investing → invest → wealth
Plenty of successful businesses have been built with money from friends, family and early investors.
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Plenty → build → friends
But equity is very different from putting $100,000 into a savings account.
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equity → put → account
Once you own a slice of a private business, there may be no simple way to turn that slice back into cash.
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you → own → cash
You could own something valuable on paper and still be unable to access your money for years.
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You → own → years
So before discussing whether this is a 'great opportunity', I'd want to understand the actual deal.
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I → discuss → deal
What is the business valued at and who came up with that valuation?
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who → value → valuation
What percentage will your $100,000 buy?
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100,000 → buy → percentage
What rights will you have as shareholders?
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you → have → shareholders
Will you receive dividends?
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you → receive → dividends
Can the owner issue more shares later and dilute your stake?
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owner → issue → stake
What happens if the business needs another cash injection?
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business → happen → injection
And, importantly, how do you eventually get out?
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you → get → ?
You also need to see the numbers behind the story.
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You → need → story
Revenue, profit, debt, cash flow and forecasts matter far more than how hardworking or trustworthy your friend is.
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friend → matter → ?
That's why I would have an accountant and a lawyer who have no connection to the business review the investment before you sign anything.
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you → have → anything
There's another number here I wouldn't ignore: $250,000.
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I → be → ?
You're talking about putting 40 per cent of your accessible savings into one private business.
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You → talk → business
That doesn't automatically make the investment wrong, but it does make the consequences of getting it wrong much bigger.
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it → make → ?
Money you may need for your mortgage, emergencies or retirement has a different job from money you can genuinely afford to lock away or lose.
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you → need → money
And then there's the part that no spreadsheet can measure: a 30-year friendship.
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spreadsheet → be → that
If you invest, the relationship changes.
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relationship → invest → ?
What happens when the business owner wants to reinvest profits instead of paying a dividend?
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owner → happen → dividend
Or takes a large salary? Or makes a decision your husband thinks is terrible?
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husband → take → decision
And what happens at Sunday lunch if your $100,000 disappears?
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100,000 → happen → lunch
…and 8 more, not listed.
The Aporia
