Invest or Not Invest: What Investors Need to Know Before Investing in a California Business

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Investing in a business – whether it's already established or a startup – requires a lot of thought and research. You want to make sure the money and resources you invest in the business are being used for what you intended and that eventually, if not immediately, you receive a return on your investment.

But there are also rules and regulations that must be followed when investing in California businesses. Here's an overview of what investors need to know before committing to an investment in a California business.

What Factors Should Investors Consider Before Investing in a California Business?

There are a number of factors any investor should consider before investing in a business in California. Many of these factors are specific to the business itself while others are specific to doing business in California. Here's what you need to know.

Investment Factors Specific to the Business

Before investing in a California business, you need to do your due diligence. This means learning more about the company. Below is a brief review of what this could look like.

The Need

First and foremost, understand what amount of funding the business needs. Whether it is a startup or not, needs can vary greatly. You want to know why the business needs the funding and what they intend to do with it. In addition, you want to know what you may get in return for your investment. 

The Market

What service or product does the company offer or sell? Is there a market for it? How large is that market? Will that market grow? You want to know the ins and outs of the market in relation to the company's service or product(s). You may want to conduct your own market research, but even if not, you must at least thoroughly review the company's business plan. A business plan should include things like:

  • the intended market and data showing why that market is targeted;
  • financial projections and hard numbers proving those projections;
  • sales channels and an explanation indicating how those sales channels are most effective;
  • an analysis of the competition and highlights of how this company is unique and distinct;
  • marketing plans and goals that are realistic and data-driven;
  • a full understanding of the potential challenges, risks, and opportunities; and
  • a timeline for when the company (and you) will see returns on the investment.

You need to see that there is a clear plan in place and that the market is ready for it just as much as the company is ready for the market. 

The Management

More important than having a unique idea and a sound plan to get that idea into motion is the necessity of having a management team that can perform. The product or service means nothing if it isn't executed properly. Who is managing the company? What is their background? What were their successes and failures? Get to know them just as much as you'll want to get to know the product and service.

State of the Company

What is the current state of the company? Where is it at? Is it a startup that requires seed money or is it established and looking to expand into new markets? Further, what is the company's narrative or story? Does it even have one? A company can give a pitch, but is that pitch worth your investment? Consider things like: What solutions does the company offer? What need does it fulfill? What makes it so special among others? How will it make a change in the market?

Opportunity for Growth

How much room is there for growth. Every company wants to grow out of its market and into new markets, but how does this company intend to do that. The potential market size for the current product or service is one thing, but will there be other products or services later or will there be a drive to expand the current product or service into new markets? Where does the company see itself in five, ten, even twenty years, and how does it intend to get there?

Exit Strategy

Whether or not a company is performing or out-performing, there may come a day when you want to exit. What will your exit strategy look like? You want to know if you'll be able to sell your share to another interested party or if the company will buy the share back. You need to know if you'll be able to get your money out of it – even when you commit to an investment and start a partnership that you hope will be long-term.

Investment Factors Specific to California

In California, one thing is certain: the State welcomes new and exciting businesses. It has been the home of tech and biotech startups for years. It is also the home of many other startups and businesses. The market where these companies can explore and grow is rich and diverse.

The primary factor to consider when investing in California businesses is compliance with the rules and regulations established by the State of California. Different rules and regulations may apply for different services and products.

In addition to complying with California law in the way you invest your resources, you'll also want to be kept abreast of laws and regulations that may have an impact on the company you invest in. Because there is a wide range of laws that could potentially affect you and your business investment, it is always best to contact an experienced business law attorney who can lay the laws out for you, explain what they mean, and provide comprehensive advice on what to do.

In today's market, you can't afford to invest in any good-sounding idea without first doing your due diligence. To invest or not is really a determination you make after you consider all the facts, understand all the relevant laws, and analyze all the data. That's where an experienced business attorney can help you.

Mohsen Parsa is a trusted and resourceful business attorney. He knows what to look for and where to look for it to make sure your investment is a secure and sound one. Contact Mohsen Parsa either online or at 949-394-6930 if you are considering making an investment in a California business and want to confirm it is the right investment to make.

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