Buying shares in a new website business

miff2373

Hi! I am new to the site so please accept my apologies if this question is in the wrong area.

I am interested in buying a few shares in a new website that a friend of mine is about to launch.

I have got a meeting with him later today and was wondering what questions I should be asking him to ensure my investment is safe (ish)

Also should I be conducting this business through a solicitor , accountant or financial advisor etc.

Sorry to be so vague but I am new to all this.

Cheers,
Mick.:o

Loughton_Monkey

It depends whether he's a licensed Stockbroker or not. If he wasn't, I probably would not be asking him anything.

Eco_Miser

Is this website going to be a limited company with shares placed on a recognised stock exchange, or it is a private venture funded by your friend and whoever he can persuade to contribute?
If the latter, unless your contribution is tiny, and you can afford to lose it all, and you are looking on this as helping a friend rather than investing in a business, RUN AWAY!
You need to ask questions about your friends competancy to run a business, competancy to run a website, how the site is going to make money, how the site is going to attract and keep visitors, who else is investing, whether your friend is really a friend, rather than an acquaintance or colleague viewing you as a money source. Then, if you've not run away yet, you probably need a solicitor to check the agreement you make with your friend.
If it's the former, treat it as you would any other high-risk investment.

jimjames

miff2373 wrote: »

I am interested in buying a few shares in a new website that a friend of mine is about to launch.

I have got a meeting with him later today and was wondering what questions I should be asking him to ensure my investment is safe (ish)

Also should I be conducting this business through a solicitor , accountant or financial advisor etc.

If it is a new business that has no track record the chances of your investment being safe are very low. Being listed on the stock market and as a limited company will give a little more protection to you as a shareholder but it is still a very risky transaction. Single company shares are higher risk than funds spread over many companies, small companies are higher risk than large ones and small ones with no track record are highest of all.

I would think it unlikely that a financial adviser would want anything to do with a transaction like this. You would probably be best advised to speak to a solicitor before handing over any money but the costs of that might outweigh any investment.

On the other hand if it is an excellent business model and your friend knows exactly what they are doing it could be a lucrative investment.

miff2373

Thanks for the replys.

As I expected there is a high degree of caution in the responses. My investment is quite small and my friend (aquaintance) has got one other main backer but now needs additional funds to launch the site. I have seen the final build for the site and inspected his business plan and basically if the site 'takes off' it could be quite lucrative.

I am still unsure as to whether to take a punt into the unknown!

thenudeone

New start ups can offer enormous returns but are extremely risky.
It is quite likely for a small business startup to fail, but there is a chance that it will succeed and you will make a good return.

You don't need to answer these here, but these are just some of the things you should consider:
What is the business plan?
Customers
Suppliers
Competitors
Income stream
Capital Investment
Obtaining credit
Competitive advantage
Barriers to entry
Exit strategy
Cash flow forecasts
Voting Rights
Shareholder agreements

There is plenty of help available to those wanting to start a new business, much of it online. Read up and do your research and then you will be able to make a more informed decision.

dtsazza

From the investment perspective, it's likely to be a very big gamble with very long odds and potential payoff. So long as you recognise this, realise there's a high chance you'll lose all of your money and are still prepared to go with it, that's fine.

From the legal perspective, I would definitely have a registered solicitor and/or stockbroker look over the documents should you plan to go ahead with this. Even disregarding deliberate deception, there are likely myriad ways that your friend could give you a piece of paper that looks good but is legally worthless. Professionals will (hopefully) know the various pitfalls to be avoided, and know what must and must not appear on share certificates, etc. They may even be able to suggest tax-efficient ways of drawing up the agreement (e.g. CGT applies at a different rate to dividend tax, and restructuring the investment terms may well be possible to switch between the two as desired).

soulsaver

Eco_Miser wrote: »

Is this website going to be a limited company with shares placed on a recognised stock exchange, or it is a private venture funded by your friend and whoever he can persuade to contribute?

What kind of web site is it? Most male adult gay webbies... are sole traders.