Management Tip of the Day: Investing in a friend's venture

Thu May 26, 2011 10:34am EDT
 
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BOSTON (Reuters) - When a friend approaches you to invest in her new venture, the result could be a dream collaboration -- or a living nightmare. Harvard Business Review has some ideas for navigating the waters.

The Management Tip of the Day offers quick, practical management tips and ideas from Harvard Business Review and HBR.org (www.hbr.org). Any opinions expressed are not endorsed by Reuters.

"A friend with a great business idea can be a blessing or a curse. Making an investment can yield great things for both sides. But, going into business with a friend can also be tricky territory.

Here are three things you should do before you write the check:

1. Set clear boundaries. Don't skimp on up-front agreements because you trust each other. Remember this is a financial transaction, not a friend charity fund.

2. Establish rules of engagement. As the venture moves from idea to execution, make sure there is a sound business plan in place and you discuss plans for action.

3. Accurately assess your partners. Going in on a venture together is a lot like dating. Don't be fooled by love at first sight. Do a SWOT analysis on your partners so you understand what you are getting into before it's too late."

-Today's management tip was adapted from "My First, Failed Foray into Venture Investing" by Whitney Johnson.

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<p>An employee working as a money changer prepares U.S. dollar currency for a customer in Jakarta October 28, 2008. REUTERS/Enny Nuraheni</p>