How can I be sure if I’m getting a good deal from my potential investor?
Thursday, July 21, 2011/
First thing to realise here is that there is no blanket rule in business that tells us what a good and a bad deal looks like.
If there was, we would all be successful, everyone would make good business deals and we would all live happily ever after.
There is however, factors to consider in every business deal which will help you in your decision-making. Remember, every case is different and dependent on risk/reward for the partner and the investor.
So, knowing that there is no hard and fast rule about whether a particular deal is “right” or “wrong”, you now need to look at the elements of the deal, the person and think 10 steps ahead.
Firstly, how will you end the deal? I know, you’re asking me about starting a deal. But my golden rule is always to start a partnership with the end in mind.
Partnerships end all too frequently because the people entering into them had completely different visions.
You need to consider hypothetically that if a deal goes ahead, what’s the end result going to look like?
It’s obviously not going to continue forever so you need to make sure make you and your investor have the same goal or at least compatible goals.
Next, you need to look at what you’re offering and what they’re offering. If your investor is minimising your risk then you need to consider this carefully. This can be a huge benefit to you.
Therefore stop considering the investor and let’s consider your situation. How much risk can you handle?
Once you know this you know how much you need the investor. If you are completely risk adverse and your investor is willing to take the risk then and only then can you consider a fair price.