May 26, 2011 / 11:57 AM / 8 years ago

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

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

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 ( 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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