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How To Invest in Small Businesses

There are many  ways to invest money. Ranging from the stock markets, fixed deposits, real estate to cryptocurrency. While these are all great investments, you might want to take a look at investing in small businesses or startups.

Small businesses play an important role in the economy by creating more jobs and bringing growth and innovation to the country but it can be quite challenging to get one off the ground. Most small businesses need investment at the initial stages,while others may need investments to sustain the business or overcome unforeseen circumstances. How then can one invest in small businesses?

There are different types of ways investors can invest in small businesses. We have Equity investment , Crowdfunding and Debt investment.

Equity investment involves an investor buying a portion of the business. This means that the investor provides funds or capital to the business in exchange for a percentage of the profit and possibly control over the business. In most cases, the capital or profits are reinvested into the business to generate more revenue.

Crowdfunding allows multiple people to contribute to a business or projects without an equity or debt stake. Crowdfunders are seeking to support a project they believe in and may receive some crowdfunding reward from the project when it is available.

Debt investment on the other hand involves an investor giving loans to small businesses in exchange for repayment of the principal balance plus interest. This type of investment requires no ownership, the business owner will repay the loan amount with interest over the agreed-upon loan term whether he or she makes profits or not.

To start investing in small businesses, you first have to conduct due diligence. Meet with the company leadership team to understand the business, how it is funded and its operations, learn more about the company goals and how they plan to use the investment. Make sure to gather information about their financials and business model. Also, run background and credit checks on the company leadership to determine any risks associated with the investment.

After conducting due diligence, make sure to consider if the company has a solid track record of meeting goals, look at their current state and their financial projections.  Does their business plan use data-based financial projections,  consider their  market opportunity and industry? You want to be sure that you are not risking your investment and to make sure  that company has the ability to grow and make profits.

Next, you negotiate terms that benefit both parties. If you are an equity investor, you need to agree on the percentage ownership and profit. Also the funding amount. If you are a debt investor, you need to agree on the loan amount and repayment terms. These terms should benefit both parties.

Lastly, you seal the deal and get involved. After conducting due diligence, negotiating terms and both parties are happy with the terms and conditions, you go ahead and close the deal by signing agreements and providing the promised capital. As the investor, you might want to stay involved in the company throughout the process after the deal has been signed and the returns from your funding start rolling into your bank account.

Although Auspicious Blockchain African project platform assists with preliminary due diligence for all businesses or projects  listed on the platform,  As an investor, you should  conduct your own due diligence as well. In addition to this, as an investor you are ultimately responsible for completing due diligence and working with the company you choose to invest in.

 

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