Investing in family / Angel funding. Please explain!

[MissMoneyBags]

I have had a windfall and am thinking about helping a family member out by investing in their business.

How does it work?

To my mind 20% of biz value = 20% ownership = 20% profit share. But seems like a very expensive way for family member to accrue investment.

Can someone please explain what the ‘norm’ is for investing in small businesses. Ideally I want a 3 year repayment plan.

A repayment plan indicates a loan, very different to a tax efficient equity share. Take tax advice from a suitable accountant.

So repayment plan was a bad choice of words.

Equity share or loan, I’m interested in either. Whichever suits us both, but I basically want an exit strategy for 3 years time.

I’ve tried googling but getting nowhere. Just wanted a basic understanding before I put it to them.

If you want an exit strategy, don’t get involved.

A loan is simpler by far - no repayments for 12 months then 24 equal payments set in advance (get legal advice and a proper agreement drawn up!) If you instead buy into the business and hold equity it is not guaranteed you will be able to ensure they will buy your share at the time of your choosing