It is fair to say not all of us are created entrepreneurs. Some (most) of us are better off managing other people’s businesses and the thought of the responsibility and stress in running our own businesses isn’t worth it at all.
Other than stocks, how can these people make their money work for them?
There are many investment options out there, but for the individuals with higher risk appetite, I encourage to go the ‘Private Equity’ route, where you get people who are already in business and are good at it, then invest in them.
An example of one such company is Alliance Capital Partners (ACP), the management company behind The Mvuli House Hotel. I’ll feature this company in my real estate post, but basically ACP has the expertise in spotting excellent real estate opportunities, structuring investment deals that deliver returns to investors that are way above the normal real estate returns (20% and above sometimes).
There are other businesses out there that have excellent business ideas, but lack the capital to scale up their businesses.
I see informal opportunities for working folk to invest in these businesses in form of equity, or a high interest loan, reaping excellent returns.
What should an aspiring investor look at?
- Private equity investments are more or less based on trust. Unlike a bank which can seize property to recover it’s capital, most start ups don’t have security, and as an investor, you don’t want to go through the hassles of auctioning property. What I would say is the character of the individual behind the business is key.
- Strength of the business plan. All investments are risky, start ups and small businesses even more so. How strong is the business idea? What are the loopholes in it? As an investor, you must be able to pinpoint these loopholes and get satisfactory answers from the business owner. If analysis isn’t your strength, consider hiring a financial analyst to help with this.
- Legal agreements. Trust is a good thing, but ensure you have airtight legal agreements that address every aspect of your investment. Bases to cover here are your rights as an investor (do you get a board seat, are you able to influence key decisions like additional borrowing, how much stake do you get etc), reporting guidelines (what sort of reports should you receive and how often, do you or your agent have access to the books of accounts etc), repayment of your principal, and distribution of profits. A good lawyer should be able to cover these. In case of a liquidation, what are your rights.
- Security – If the investor is able to offer security then well and good, though as I said, due diligence and trust is more key because you don’t want to be stuck with assets you can’t dispose.
If you have the heart for small businesses, and don’t mind a little risk, then this would be interesting.
Good luck!
{ 2 comments… read them below or add one }
Kellie…just a quick question.
What’s the market like in Kenya for business angels and high net worth serial entrepreneurs who are happy to risk their money in viable ventures that are at a start-up or development stage that find it hard to attract debt or asset finance?
Being a business angel is itself a viable business opportunity (of course with the health warnings that come with it).
@Darius, well, as they say there’s alot of money floating around looking for investments, the trick is how to reach it. I have participated in capital raising from angel financiers and have advised one or two friends on this, will do a post on this tonight. Just sharing the experience.