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Investing in super early stage startup = Risk /\/ Reward

Iโ€™ve been rather more conservative and risk cautious investor for over 5 years now - mostly putting the hard earned cash into real estate and a tiny chunk in stocks ๐Ÿก ๐Ÿ“ˆ


However a good friend of mine turned up today at my place โ€œpitchingโ€ me his brilliant tech product idea which can be wildly scalable (if it takes off)


I am always trying to keep the friendships and money separate to avoid some sort of unpleasant events (should sth go wrong) - however heโ€™s been really insisting and so far heโ€™s been always good with money and he knows what he is onto.


I donโ€™t wanna let him down - coz I wanna help him bring his idea to the market, also make some good business deal, but the above concerns does hold me backโ€ฆ ๐Ÿง


Whatโ€™d be your advice?

๐Ÿ„ Personal Life
๐Ÿ’ธ Investing
24
braintank
Politicker
+6
Enterprise Account Executive
1) don't mix friends and money

2) most start ups fail

Does your friend have any experience building software?

Stick to stocks and real estate
swizard
Celebrated Contributor
+9
Sales Evangelist
Thats the thing, heโ€™s never built/exited a successful startup in the past
braintank
Politicker
+6
Enterprise Account Executive
That's a big risk for you.
swizard
Celebrated Contributor
+9
Sales Evangelist
Appreciate the advise!๐Ÿ™
Ace
Arsonist
+9
CEO
Consider the following:

1. How big is the market and how's the need?

2. Who are the competitors and how is this guy different?

3. What's his moat?ย 

4. Most important - What's his solid 5 month, 1 year, 2 year plan? When will he break even?

5. Where is he putting the money? If it's a tech product then it makes more sense to build it in-house. That way other investors can come up in future funding rounds and your risk will be shared. If the tech part is outsourced then investors usually sit out.

6. Since you want to help and also don't want to lose money, do a fusion deal - Equity + Revenue sharing. So you'll have some money coming in as soon as the first client comes in.
sa
saleskick
Opinionated
+1
Sales Specialist
All valid points mentioned above + make sure to be ready to loose all that investment - unless you are at some extend OKAY with that, investing in high potential/high risk early stage startup is a risky game.ย 
swizard
Celebrated Contributor
+9
Sales Evangelist
well said! thanks!ย 
Telehealth_2the_Moon
Notable Contributor
+12
Director of Business Development
Not sure how much his ask is for, but I wouldn't consider giving him a dime more than you'd be willing to spend on a lottery ticket type opportunity, since this is likely what it is.ย 

Also, if you're going to mix friends and money, don't skip the legal stuff "because you go way back", make sure everything is written, signed, and sealed so you don't end up getting a winning lottery ticket just to be told by your now super rich friend to fuck off.
Sgt_Trollingham
Valued Contributor
+5
Business Development Director
Who else is investing? If he doesn't have start up experience (not necessarily a dealbreaker), see if someone else can put up say 1/2 the money and go in as an investor/co-founder. De-risks the investment, but should bring in someone else who knows the type of journey this will be. There are some great early stage investors who want to put in both time and money, because they know the returns are higher than investing in Coca-Cola in 2021 and way more fun than working at an established company.ย 

Do your due diligence. Does he need the money from you? Or is he offering it up to you first?
GDO
Politicker
+6
BDM
Huge risk. Iโ€™m pretty riskaverse so I would not do it. Also money and friends do not mix. I do not loan friends money. I would give them (small amounts) money though.ย 
Kinonez
Arsonist
+8
Team Lead
Iโ€™ve invested in a couple of my friends ideas, they do appreciate it, no matter how much or little you invest.ย 

That being said I was never a mayor investor and invested amounts I was ready to loose. Which wasnโ€™t always the case. Our friendship wasnโ€™t affected because I had that mindset.ย 
SiliconBBQ
Politicker
+2
Account Executive
consider any loans to friends/family a gift that will never be returned and your relationship won't go south.ย 
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