So you want to do business, but you do not know how and where to start? Given you have two options – entrepreneurship or investment. Entrepreneurship is the process of starting and designing a new business. Investment, on the other hand, is the allocation of money in the present to someone or to somewhere else, with hopes or rather with expectations that it will return to the one investing – the investor. Entrepreneurship is a big task. It requires a lot of work. It requires hours, days of planning. And it requires capital, usually a large one. There’s just too many things to consider. Whereas in investment, you just need some money. Although, it does not always have to be about money. And how much money is needed? That is up to you. The bigger the investment, the bigger the return. The smaller the investment, the smaller the return. If this will be your first time doing a business, your safest bet would be investment.
But investment is not just the “process of laying out of money in the present to receive more money in the future,” to use the words of Warren Edward Buffett, an American business magnate, investor, speaker and philanthropist who serves as the chairman and CEO of Berkshire Hathaway. Investment is also about having a good relationship with the people the investor is working with, or having a contract. And this good and stable relationship can be established by means of agreement.
Investment agreement (or contract) is an agreement in the form of a document that binds the involved parties – the investor, the business proprietor, and future shareholders, to agree on common terms regarding financial assets, cash flows, returns, benefits, profit and loss statement, their individual roles, etc.
Parties in Investment Agreement
Basic Documents in an Investment
What is there in an Investment Agreement
There are many items that can be included in an investment agreement. Depending on the partnership, it can vary from one to another. But these are the ones we usually find:
Thee are basically the common ones we find in an agreement. Other would include the following: exhibits, investment and project funding, disbursement and use of investment, review of the project and of the business, project management, dissemination, et cetera.
Types of Investment Strategies.
Before you enter into an investment agreement, especially as individual investor, it would be fitting if you have some basic knowledge and strategies about the how-tos of investment, be it big or small. Bear in mind, you are putting up some hard earned money or properties in an investment, and wasting it should be the last thing that should happen. The buy cheap, sell high approach is a basic strategy in all kinds of business, and can be applied as well in investment.
Common Rights of an Investor
Depending on the company, these may vary from one to another. These rights may be agreed upon between the investor and the rest of the party.
Personal investment is a good way to start on a business. Unlike entrepreneurship in which you really have to start the design, the planning, the creativity, the whole building of a new business, in an investment, you just have to ride on with someone. All you do is take part in the share of the capital for the business to start, but actually, you really do not have to think about business in the strict sense.
If you want to be very successful as an investor, you can actually start by having a consultant. Investor is not that difficult but it can be very tricky. It is tricky because you may not be familiar with the business that you invested into. If you do not spend too much time studying the business you are into, your one option is to hire a consultant.
Or if you prefer reading books, you can start collecting books about investment. There are too many of them. In fact they are sometime mentioned even in an entrepreneurship books.
Purpose of Agreement
The purpose of investment is to maintain harmonious relationship between two or three parties, in this case, the investor and the business owner. And that applies for all kinds of agreement: employee and employer, sponsor and proponent, et cetera. The agreement will set terms for the transacting parties and will bind any rules so that they should be followed throughout the course of the contract.
In an investment agreement, the terms may include the percentage that the investor will claim, or how much he should be investing. It may include the power he has over the business. As mentioned earlier, it can be about the rights that he has, or the lack of it.
Purpose of Investment
To simply say it, we invest money, because we want to have more money. We know all the risk that is involved in investment, still, people would invest because there is likely more profit than there is risk. This is a very self centered concept of investment. We invest because we want to gain. We have money, but we want to use it so that we can have more, so that we can have more money. And this is a very limited notion of investment. investment should be about improving one’s wealth, as well as, helping others. Investment is self centered, in nature. But as humans, we should go beyond the common understanding of it, going beyond what is normal.
Investment is a limitless business, as long your have the money to start it. Its biggest advantage comes from the fact that it does not require one to make business. It is like putting up some money in bank. You just leave it there. And it will grow without you planting planting plants without watering them. Well, actually you have the option whether to water it or not.
The very purpose of investment agreement is to draw a line between the investor and the business owners. That way there is no overlapping of roles, that way, there will be no confusion. Although it is clear from the start as what roles each party has to play in the business, it is necessary that there should be a documentation. The documentation is where the two parties will go back to when there is a need for clarification. This will prevent a cause for conflict.