Investing in start-up / Angel investment

[Smeeglz]

I'm in the position to invest in a promising start-up business led my a friend, and I also have expertise in the area of business that she lacks.

I'll be paying the full amount of start-up capital in physical products, but with my guidance, I'm 99% sure this will be a profitable venture as it is an offshoot of what I do now anyway - very successfully.

My friend is a well known influencer and wants to bring out merch.

What ROI would I be looking for? We want to have everything legally contracted. I do want it to be an investment rather than a loan, and I'll be overseeing aspects of the project and offering consultation.

It's a new area for me - is 15% ROI per annum usual for a beginner?

Thanks for any help

Do use an accountancy that has experience in registering new businesses and issuing shares. They should also be Ble to advise you and your friend on the most tax efficient way to invest.

In terms of ROI - I assume you're not looking for a guaranteed return (as you would with loan, rather than an investment). Large early-stage investors tend to look at the portfolio as a whole, rather than individual assets. Many of the companies they invest in will fail, or only produce minimal returns, but a few will provide extremely high returns. They typically wouldn't consider investments where the 'best case scenario is a 15% return, because that isn't enough to offset the quite significant risk of failure.

Given that you are an individual and it doesn't sound like you are planning to invest in a portfolio of businesses, this is something you need to decide for yourself - is a 15% return enough to reward you for taking a risk on your friend and forgoing the opportunity of investing for example in the stock market?

In general I'd advise you to only Invest money that you can afford to lose - despite your confidence in the business model, things can and do go terribly wrong. I'd also advise you to be extremely clear with your friend on responsibilities/whether you'll be actively involved in the business, when you expect to see your money back, and what the exit strategy for your investment looks like.

If they are a well known influencer why are you the one paying the full start up capital? Maybe I have misundersood but it sounds like they are either not willing to take the financial risk or bad with money management. Both of which are red flags.

Make sure you look at the EIS/SEIS schemes. There are very good tax breaks if the investment is eligable.