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Protect Your Business From Bad Angel Investors

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If you are thinking of starting your own business, and have an idea that is burning in your mind about a stellar product that you know will be hot, you are going to need capital. But before you rush out and sign a loan or solicit the help of an angel investor, stop and take a few steps to protect your company. Yes, there are bad investors out there, and here is how to avoid them.

First, before signing up with a potential investor, do some background checking on the investor. There are plenty of shady individuals out there with money who can present you with an excellent business proposal, but really are only out to take your hard earned equity and run with it. You can use the internet to research your investor and see whether or not he has a bad history, including crimes in his past. Also, search any business database you can find, and look for inconsistencies on the part of the investor. Or, if you cannot find any information at all about your potential angel investor, chances are something is not quite right.

If the angel investor proves to be legitimate, get to know the investor's personality. Find out why he chooses to invest. To do this, listen carefully to the questions you are asked about your business. If the investor seems obsessed with one aspect of how you manage your business, watch out! You may be looking at an angel who really wants to take over ownership of the business.

Before you sign any agreement with your angel investor, make sure that both of you set your expectations, on paper if possible. Be as detailed as you can as to what you both expect to receive out of the deal. Be sure to talk about and write down the level of control that the angel investor is going to have after you sign all of the paperwork. Doing so will eliminate any miscommunications or disappointments in the future.

Seek the help of other business owners or even investment consultants before you sign with any investor. Remember, you are going to become emotionally attached to the money that you need, and may make wrong judgments. Do not be afraid to ask for help when you need it.

Finally, if you have a problem with your investor after entering into the agreement, deal with it as quickly as humanly possible. Start talking professionally with the investor if you see a problem with the way that he is handling the business relationship. Remember, you are still the owner of the company, and while you are grateful for the money you have been given, you did not sell your ownership. If an investor is overstepping the bounds set forth in the investment agreement, you have that document to fall back on, and you need to protect your business!

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