Many businesses that have investors benefit from access to cash, valuable business connections and additional expertise. This can help them grow more quickly and may reduce their own financial risk. Investors can also use tax reliefs such as the SEIS to enhance their returns and lower their overall investment risk.
It’s worth remembering that an investor will expect a return on their money, or at least a percentage of the profits that the company generates. This means that if you invest in your friend’s business, they will be taking some of your profit (either directly or through equity deals).
Diversification is the idea of not putting all your eggs in one basket. There are many different ways to diversify a portfolio, including investing in different investment types and geographical locations. This can help to mitigate risk and smooth out returns.
It can also mean investing in different industries and sizes of companies. This helps to spread risk because businesses in different industries tend to have a low correlation with each other. It can even involve buying stocks and bonds of companies at different stages in their lifecycle.
Small businesses are the backbone of the American economy and generate more than half of all new jobs. They provide identity to the community they serve and foster entrepreneurship. They create wealth for the owners, their families and employees as well as the local economy as a whole. While there are obvious financial rewards to investing in business, it is important to remember that wealth creation is a broader subject than income alone.