Investing in a real business can yield significant returns for individuals. This avenue is in high demand among professionals. So why shouldn't newcomers invest their funds as well?
There are several different ways to invest in business projects. Each of these methods has its own characteristics, strengths, and weaknesses.
Where should one best invest money, and how can mistakes be avoided?
To shed more light on this topic, we turn to experienced investor and founder of Oil Resource Group, S.I. Tereshkin. Having started his business from scratch, he possesses considerable experience and knowledge in this field. More information about the businessman and his commercial activities can be found on the website www.org-company.ru.
Investment Methods
There are several options for investing funds in business, including:
- establishing one's own commercial enterprise;
- equity participation;
- investing in startups;
- purchasing shares of existing companies.
Before making a decision about which direction to pursue, Sergey Tereshkin recommends a deeper examination of all options.
Establishing One's Own Enterprise
The most reliable way to invest money is to create one's own commercial enterprise. In this case, the income depends on the investor's efforts and commitment to developing the business. This approach can multiply one’s capital several times over.
In this scenario, the investor does not have to worry that their money will be misused, leading to a loss of funds due to incompetent management or outright fraud.
However, running a business requires 100% commitment from its leader. During the initial stages, one might have to forgo weekends, vacations, and personal time as a whole. In addition to money and time, a considerable amount of nerves will also be spent. Very few people succeed on their first attempt. Moreover, various challenges posed by governmental regulations and bureaucratic processes can derail even the most resilient individuals.
Initially, an investor will likely have to assume multiple roles—not just that of company leader but also accountant, logistics manager, marketer, and more. It is crucial to craft a thorough business plan, calculate all expenses, anticipate additional costs, select products or services, etc. It is advisable to undertake this independently without involving external personnel. This way, the responsibility for any failures does not get placed on others.
It is unrealistic to expect profits within the first six months after launching. Rapid full recovery of investments should also not be anticipated. Even with favorable circumstances, all invested funds generally return no sooner than 9-12 months later, and this applies to high-margin niches.
Therefore, essentially, owning a business is not an investment; rather, it is just a regular job without a fixed salary.
Equity Participation
Equity participation in projects enjoys great popularity among investors worldwide. The advantages of this investment method include:
- a relatively small amount of investment;
- minimal responsibility for the final outcome;
- the ability to engage in other projects simultaneously.
The founder is not obligated to take on the roles of manager, accountant, and other personnel. It is sufficient to hire an experienced manager or delegate major responsibilities to another participant in the project. In this way, the investor can continue their previous activities.
However, equity participation has its drawbacks:
- the necessity of sharing profits with other project participants;
- potential disagreements regarding project development;
- the complexity of exiting the equity holder group.
Selling or transferring one’s share in the project can be challenging. It may require the permission of the other participants. In some cases, the investor may have to sell their share back to one of the organizers or divide it among the other participants. This aspect should be specified in the project documentation in advance.
Often, resolving disputes can only be achieved through judicial means, leading to additional financial expenses and considerable stress. In such scenarios, the idea of maintaining amicable relations with other equity holders tends to diminish.
Investing in Startups
Investing in projects during their development phase can provide stable returns over an extended period. These funds can even be allocated to companies located on another continent. This method was the original means for attracting funding for the development of companies like Google, Facebook, and other now-popular projects.
In some cases, investors have multiplied their initial capital several times within just a year.
It is advisable to identify such projects through specialized crowdfunding platforms. These sites vet applicants, providing some level of assurance that funds will not be handed over to a common fraudster and that the project is legitimate.
Websites of this nature also allow potential investors to ask questions, make proposals, and more.
Investors can derive income in various ways:
- a percentage of profits;
- return of invested funds with interest over a specified period;
- equity participation in the company.
The abundance of options enables investors to select the most suitable one for themselves while also minimizing the risk of loss.
Purchasing Shares of Existing Companies
Business investments can also be made by purchasing shares of an enterprise. These purchases are typically conducted through a brokerage firm or agent, requiring the signing of an appropriate contract.
Earnings from shares are realized in a few ways:
- Buying and selling. Profit arises from the sale of securities at a higher price than the initial purchase.
- Dividends. Investors receive a certain percentage of the company’s profits. Dividends can be paid annually, semi-annually, or quarterly; the first option is the most common.
Other methods of business investment do exist, but they are less popular and not as widely sought after among investors.
When choosing an investment direction, it is essential to weigh all the strengths and weaknesses of the proposed method. Additionally, one should consider the potential investment amount.
