Investing money into companies and restaurants.

[kaliyugasurfer]

Hey All!

Im new to this forum, long time reader and follower of mr money mustache. I  know it may seem like on the small end, but lets say in theory i had 60, 000 dollars. And instead of investing all of it in a 401k, mutual fund  or stocks. I would like to provide this money to individuals or companies to help them out with projects or work, or devices that their company needs. Is there a term of this? and is there any advice i can be given as to how to go about doing this? I was thinking my start out point is to get my corporation registered with my state. But im not sure where i should go about learning more on how to do this. Can anyone here who does this recommend me some books  or Links that are interesting?

A great book called rich dad poor dad mentions investing your money into something you love, and i would love to do this, as it will provide my local community with a new business and allow people in the area to get jobs and work experience. And i myself would make a living off of this as well. I want to do this on the side as i  continue my office job.

[RWD]

It's really not a good idea to concentrate your risk like that.

A great book called rich dad poor dad

That is not a great book.

[Proud Foot]

Hey All!

Im new to this forum, long time reader and follower of mr money mustache. I  know it may seem like on the small end, but lets say in theory i had 60, 000 dollars. And instead of investing all of it in a 401k, mutual fund  or stocks. I would like to provide this money to individuals or companies to help them out with projects or work, or devices that their company needs. Is there a term of this? and is there any advice i can be given as to how to go about doing this? I was thinking my start out point is to get my corporation registered with my state. But im not sure where i should go about learning more on how to do this. Can anyone here who does this recommend me some books  or Links that are interesting?

A great book called rich dad poor dad mentions investing your money into something you love, and i would love to do this, as it will provide my local community with a new business and allow people in the area to get jobs and work experience. And i myself would make a living off of this as well. I want to do this on the side as i  continue my office job.

The term is Angel Investor, Venture Capitalist, or Private Money Lender. Without being an accredited investor you will have a harder time finding these opportunities but it still is possible. You will need to work hard to build a network and develop yourself into someone who is proven to have either expertise within the area, ability to work within the project, deep pockets to help fund it, or be sort of celebrity to where merely adding your name is a boost to the venture. It can also be a lot of work as you want to do your due diligence on the company, business plans, other investors, and management prior to making the initial investment and then continued to make sure you are getting a return on your investment. Even if you make the investments through a company whose purpose is to vet and decide on investment opportunities you still need to do this yourself on some level.

Start by building your network and developing connections with people who are currently doing this type of activity and see if they will let you go through the full process with them to get a full understanding of all the details. Then you can see exactly what is required and learn how to do it.

With regards to restaurants I would suggest staying away from them. Typically they have high costs with low margins. There are a couple restaurant groups where I live and they are continually opening new concepts that may last anywhere from a few months to a few years to some going strong after a decade.

[kaliyugasurfer]

Now what if i dont make all my investment into this? i could afford a loss of 60,000 Not that i want to. But  Failure will just cause me to learn. This is something i know exist and is done. I have Met many contractors who simply provide the tools, money, and staff for a company to do Construction/ renovating work. While knowing nothing about construction themselves. But the capital is needed for the equipment and workers  and by providing that capital you also earn some of the money from the contract.

Thank you Proudfoot for for those terms. That is enough for me to look into this more, and Also i will try to connect with someone that does this. I have worked On the East and West coast of the USA now, and i have made connections with many people, sadly nobody that is an angel investor or venture capitalist. I have heard of Buying out Debt. My coworkers mentioned this to me, but they also mentioned that it could result in just Losses.

[erutio]

Why would they go to you vs just getting a business loan? 

At a small sum like $60k, this is generally a very bad idea.

[Psychstache]

To save time and expedite the process, you could just set your money on fire. Bonus: you would be warm.

Seriously though, @kaliyugasurfer has the right of it. 60K is nowhere near the amount you would need to execute on something like this.

[SeattleCPA]

With regards to restaurants I would suggest staying away from them...

I once mentioned to a good friend and very experienced entrepreneur that I thought maybe a restaurant made sense...

Anyway my friend sort of chuckled for a moment at my foolishness. And he then pulled me aside and kindly explained I was thinking about this all wrong. All I needed to do was find a really nice place. somewhere I truly enjoyed.

I then ought to visit regularly, tipping absolutely everyone lavishly. A human ATM machine...

He further recommended I regularly give the sommelier a $200 bottle of wine. Maybe once or twice a month.

When I scowled and asked what he was talking about, he just laughed. Then he explained I would essentially "own" that restaurant after a few months... really for just a couple of grand... and without any of the headaches of ownership.

[kaliyugasurfer]

Ok so what if i invest 120,000. or is 200,000 required? Because that certainly is achievable. I don't see why this is a bad idea. I mean you buy stocks because you want to own a share of the company and earn some of the profit. I want to do the same exact thing, except in my local community as opposed to a giant corporation like microsoft, Tesla, or Apple. before 1913 (A horrible day in american history) Income tax was not a thing for citizens. And if there was no local bank nearby, do you think the citizens of athens just moaned and groaned about the lack of restaurants/ quick foods? They instead got a bunch of people with money to invest into a business and started it themselves.

[oldmannickels]

I think the issue is that money is not the issue. If someone has a good idea and work ethic coming up with $60k is not going to be the issue. The people who are going to be coming to you to get the $60k have already been to a bank, credit union family member, girlfriend's parents and then they heard you were giving people money. Then the take your money and proceed to waste it because the idea wasn't thought through or they can't put in the work to execute it properly.

[RWD]

Ok so what if i invest 120,000. or is 200,000 required? Because that certainly is achievable. I don't see why this is a bad idea. I mean you buy stocks because you want to own a share of the company and earn some of the profit. I want to do the same exact thing, except in my local community as opposed to a giant corporation like microsoft, Tesla, or Apple. before 1913 (A horrible day in american history) Income tax was not a thing for citizens. And if there was no local bank nearby, do you think the citizens of athens just moaned and groaned about the lack of restaurants/ quick foods? They instead got a bunch of people with money to invest into a business and started it themselves.

It's a bad idea because you are not diversified. When you buy an index fund you own thousands of companies. So even if some of the companies go bankrupt you only lose a small percentage of your investment. With a concentrated investment you risk losing it all.

You would be better off trying to start your own company. Still risky but at least you would be in control.

[Villanelle]

Look at the percent of restaurants that start and go out of business, and then the percent of publicly traded companies that go out of business.  That will start to tell you why it's a bad idea. 

And um, maybe, just maybe, investment principals and economies have shifted a wee bit since the heyday of Athens.  And even then, the Athenians were likely borrowing from people they actually knew.  Oh, and I'm guessing collections methods were also a hair different in the BC era.

But by all means, have at it.  There is a small chance you won't lose money, and an teeny tiny chance you may even make a little. Of course, you are also going to have to pay a lawyer to draw up contracts, especially since you clearly aren't very knowledgable about any of this, so you are going to start off well in the hole.  Or you can skip that and do it with a handshake or a "contract" you type up yourself.

[erutio]

... I would like to provide this money to individuals or companies to help them out with projects or work, or devices that their company needs...

What exactly are you planning to do?  Buy into a stake of the businesses, and get a percentage of profits ?  Or provide a private loan and collect interest + payments?

[SeattleCPA]

Ok so what if i invest 120,000. or is 200,000 required? Because that certainly is achievable. I don't see why this is a bad idea. I mean you buy stocks because you want to own a share of the company and earn some of the profit. I want to do the same exact thing, except in my local community as opposed to a giant corporation like microsoft, Tesla, or Apple. before 1913 (A horrible day in american history) Income tax was not a thing for citizens. And if there was no local bank nearby, do you think the citizens of athens just moaned and groaned about the lack of restaurants/ quick foods? They instead got a bunch of people with money to invest into a business and started it themselves.

It's a bad idea because you are not diversified. When you buy an index fund you own thousands of companies. So even if some of the companies go bankrupt you only lose a small percentage of your investment. With a concentrated investment you risk losing it all.

You would be better off trying to start your own company. Still risky but at least you would be in control.

I think small business ownership works as discussed here:

https://evergreensmallbusiness.com/small-business-entrepreneurship-better-bogleheads-mr-money-mustache/

Also I think the Millionaire Next Door philosophy basically reflects this...

https://evergreensmallbusiness.com/defending-millionaire-next-door-theory-what-stanleys-critics-got-wrong/

But the approach isn't without risks or problems... certainly the route isn't for everyone...

https://evergreensmallbusiness.com/small-business-entrepreneur-route-financial-independence/

[kaliyugasurfer]

... I would like to provide this money to individuals or companies to help them out with projects or work, or devices that their company needs...

What exactly are you planning to do?  Buy into a stake of the businesses, and get a percentage of profits ?  Or provide a private loan and collect interest + payments?

Yeah buy a stake into businesses.

Also im noting down what everyone here is saying and i am listening openly. I appreciate all and any advice. I also am aware of the lawyer fees for a contract.

[Metalcat]

I mean...sure...you can do that...if you want...

It's not a smart way to make money, but it's cool if you want to give a chance to businesses that haven't qualified for any other institutional options for business funding because on paper they look like a really high risk...because they are.

A company that needs capital so badly that it's willing to give up equity to an investor who can literally do NOTHING for them in terms of business skill/knowledge/acumen/connections/etc, is a business that is failing.

You have to remember that business partners need to bring a lot more to the table than just capital. If a company is willing to give up a piece of their nut, they need to be getting something in return from the partnership. The only businesses that will concede equity for absolutely no benefit other than a small chunk of capital are businesses that are seriously suffering, which means that by definition, your options are limited to mostly bad investments.

If you want to get into the business of providing small business loans, that's a whole other matter, but again, you will be dealing with only businesses that can't secure loans from banks, and are fundamentally higher risk.

Now, let's look at the fact that most businesses like restaurants fail, even though they have access to bank loans. So you are looking at "investing" in businesses that are the bottom rung of a business class that is famous for failing.

Most restaurants fail not because they lack 60-200K in capital, they fail because they were always destined to fail, and an extra 60-200K would just allow them to fail a bit slower.

I get the concept of what you are trying to achieve, but there's a damn good reason why no one does it.
The amount of money you are talking about is not likely to make or break many businesses, and the businesses that do benefit from that type of cash influx aren't going to be looking outside of traditional options like banks, because banks are going to readily lend to them.

You could try and find the needle in the haystack that looks on paper like a bad investment, but is actually a diamond in the rough, and doesn't require any intervention to get it there, and is happy to give up significant equity...but seriously, what are the goddamn chances that you can find that special exception to the rule???

Maybe look into micro loans if you really want to scratch this itch?

[kaliyugasurfer]

Micro Loans sounds interesting. Yea the more information i get about this the more it seems like something not really worth doing. At least not until a later time. I have heard however with Micro loans that if the loan is not paid, that all i can do is usualy sell the debt to a debt collector to recuperate some of the loss.

[Metalcat]

Micro Loans sounds interesting. Yea the more information i get about this the more it seems like something not really worth doing. At least not until a later time. I have heard however with Micro loans that if the loan is not paid, that all i can do is usualy sell the debt to a debt collector to recuperate some of the loss.

And what would you have expected with a restaurant???!!!

As a former chef, I can tell you that you could have easily expected to walk away with an industrial microwave at the end of the day, if you were lucky.

[Nords]

Batsignaling @Nords because he was doing some venture investing for a time, not sure if he still is.

Thanks for the tag, lhamo!

I’m an accredited investor and I’ve been a member of Hawaii Angels (along with ClifP) since 2007.  I’ve also invested in Blue Startups (BlueStartups.com) and I volunteered there for a few years.  I’ve seen over a thousand pitches, screened a couple hundred for angel meetings, and done due diligence on about 50.

I’ve invested in 10 other startups, and I’ve bought more shares in the additional rounds of three of those which are still growing.  (Blue Startups is also succeeding, but the terms of their current round are too expensive.)  Four of those 10 have failed, one is effectively dead, and two others are too close to call either way.

I’ve stopped investing in new startups and I’m winding down the existing investments.  I wanted to learn about angel investing while I’m at the peak of my cognition and I wanted to avoid being tempted by it when I’m in my 70s.  Both of those goals have been met.

I've drafted a lessons-learned post on angel investing, and I'll publish it when any of the startups I've invested in have an actual no-foolin' exit.  Profits would be great, but there should at least be an exit.

And instead of investing all of it in a 401k, mutual fund  or stocks. I would like to provide this money to individuals or companies to help them out with projects or work, or devices that their company needs. Is there a term of this? and is there any advice i can be given as to how to go about doing this? I was thinking my start out point is to get my corporation registered with my state. But im not sure where i should go about learning more on how to do this. Can anyone here who does this recommend me some books  or Links that are interesting?

Kaliyugasurfer, you’re contemplating angel philanthropy.  If you’re not an accredited investor (yet), the easiest way to get involved is through crowdfunding like Kickstarter or AngelList syndicates (Angel.co). 

If you want to learn more about angel investing, instead of simply giving money to cool entrepreneurs doing amazing things, then I’d recommend reading:
Paul Graham’s blog (he co-founded Y Combinator),
Scott Shane’s “Illusions of Entrepreneurship” and “Fool’s Gold”,
Robert Robinson’s “Angel Investing”, and
Venture Hacks (by the founders of AngelList).

There’s also volunteering or interning at a local accelerator.  You can find one through angel groups in your local area (search the Angel Capital Association website), the business schools of your local universities, or by searching for <startup accelerator> in your area.  I recommend “local” because you’re going to be there at least a couple times per month and you want an easy commute.

I have no comments on the rest of your posts in this thread. 

I have two suggestions:
1.  The most successful factor in my 40 years of investing has been:  high savings rate.  When you invest a high percentage of your income (dollar-cost averaging) then you don’t have to be brilliant or timely or even very rigorous at it.  You just have to invest, and you can put that in autopilot.  Using passively managed index funds with low expense ratios is great, but even that is still a smaller compounding effect than a high savings rate.  Here’s how I know:
https://the-military-guide.com/four-decades-of-investing-lessons-learned/

I would like to provide this money to individuals or companies to help them out with projects or work, or devices that their company needs.

2.  When you do this, limit it to 10% of your overall asset allocation.  You may turn out to be a brilliant investor, but if you’re not then you’ll at least limit the self-imposed damage of your quest.  Let’s not get into how I’ve learned that.

Those two tactics made me an accredited investor. 
https://www.investopedia.com/articles/investing/092815/how-become-accredited-investor.asp
The reading, the angel groups, and the volunteering made me a informed angel investor. 

If you’re building a sustainable method of giving money to entrepreneurs, then first achieve financial independence for yourself.  (Through a high savings rate and the other 90% of your asset allocation.)  When your net worth continues to compound beyond the 4% SWR then you can devote larger sums to your goals.

[kaliyugasurfer]

Batsignaling @Nords because he was doing some venture investing for a time, not sure if he still is.

Thanks for the tag, lhamo!

I’m an accredited investor and I’ve been a member of Hawaii Angels (along with ClifP) since 2007.  I’ve also invested in Blue Startups (BlueStartups.com) and I volunteered there for a few years.  I’ve seen over a thousand pitches, screened a couple hundred for angel meetings, and done due diligence on about 50.

I’ve invested in 10 other startups, and I’ve bought more shares in the additional rounds of three of those which are still growing.  (Blue Startups is also succeeding, but the terms of their current round are too expensive.)  Four of those 10 have failed, one is effectively dead, and two others are too close to call either way.

I’ve stopped investing in new startups and I’m winding down the existing investments.  I wanted to learn about angel investing while I’m at the peak of my cognition and I wanted to avoid being tempted by it when I’m in my 70s.  Both of those goals have been met.

I've drafted a lessons-learned post on angel investing, and I'll publish it when any of the startups I've invested in have an actual no-foolin' exit.  Profits would be great, but there should at least be an exit.

And instead of investing all of it in a 401k, mutual fund  or stocks. I would like to provide this money to individuals or companies to help them out with projects or work, or devices that their company needs. Is there a term of this? and is there any advice i can be given as to how to go about doing this? I was thinking my start out point is to get my corporation registered with my state. But im not sure where i should go about learning more on how to do this. Can anyone here who does this recommend me some books  or Links that are interesting?

Kaliyugasurfer, you’re contemplating angel philanthropy.  If you’re not an accredited investor (yet), the easiest way to get involved is through crowdfunding like Kickstarter or AngelList syndicates (Angel.co). 

If you want to learn more about angel investing, instead of simply giving money to cool entrepreneurs doing amazing things, then I’d recommend reading:
Paul Graham’s blog (he co-founded Y Combinator),
Scott Shane’s “Illusions of Entrepreneurship” and “Fool’s Gold”,
Robert Robinson’s “Angel Investing”, and
Venture Hacks (by the founders of AngelList).

There’s also volunteering or interning at a local accelerator.  You can find one through angel groups in your local area (search the Angel Capital Association website), the business schools of your local universities, or by searching for <startup accelerator> in your area.  I recommend “local” because you’re going to be there at least a couple times per month and you want an easy commute.

I have no comments on the rest of your posts in this thread. 

I have two suggestions:
1.  The most successful factor in my 40 years of investing has been:  high savings rate.  When you invest a high percentage of your income (dollar-cost averaging) then you don’t have to be brilliant or timely or even very rigorous at it.  You just have to invest, and you can put that in autopilot.  Using passively managed index funds with low expense ratios is great, but even that is still a smaller compounding effect than a high savings rate.  Here’s how I know:
https://the-military-guide.com/four-decades-of-investing-lessons-learned/

I would like to provide this money to individuals or companies to help them out with projects or work, or devices that their company needs.

2.  When you do this, limit it to 10% of your overall asset allocation.  You may turn out to be a brilliant investor, but if you’re not then you’ll at least limit the self-imposed damage of your quest.  Let’s not get into how I’ve learned that.

Those two tactics made me an accredited investor. 
https://www.investopedia.com/articles/investing/092815/how-become-accredited-investor.asp
The reading, the angel groups, and the volunteering made me a informed angel investor. 

If you’re building a sustainable method of giving money to entrepreneurs, then first achieve financial independence for yourself.  (Through a high savings rate and the other 90% of your asset allocation.)  When your net worth continues to compound beyond the 4% SWR then you can devote larger sums to your goals.

Thank you for all that wonderful information. I will make sure to buy those books and read them. And yes i agree entirely on mutual index funds being great and do invest in them. I am uneducated in this field as i said in my initial post. This thread has been a great resource for me to read up and learn on this subject. Thank you very much. And im sure it will be a great resource moving forward for anyone else who also shares any interest in this field of investing.

[erutio]

You can borrow those books from the library.

[kaliyugasurfer]

You can borrow those books from the library.

Thats true.  but im going to yellow stone for 2 weeks as  i will travel across the country to my old home city.  And that would be a perfect time to read.

[SeattleCPA]

I know one Seattle restaurant they funded (Kracken Congee) ended up going under, I think due to problems with either the partnership or the lease or both.

Er, also seems very possible that Seattle's high minimum wage laws which also apply to waitstaff come into play.

Not to name names, but some long-time Seattle restaurants IMHO provide a pretty crummy experience under new rules. (What I'm thinking about are the places that, in response to the minimum wage, now add a standard gratuity to the bill...)

[MaaS]

Please do not invest money to help someone else start a restaurant. Restaurants are one of the riskiest investments on the planet. And a new, unproven one? Yikes.

Additionally, if you need to ask these sorts of questions to a forum of internet strangers investing in any sort of private/new company is flat out reckless. I don't want to be a prick - but it's true.

Invest in broad indexes or at least publically traded companies, read and learn, and consider this type of stuff when you're filthy rich.

[kaliyugasurfer]

Everyone is misunderstanding the point of my question. Its not specific to restaurants or anyone thing. Im just interested in this subject and would like to learn more, and what better place than a forum filled with other financially independent individuals that follow principles in life like mine (having more assets than liabilities)  I have had my questions answered and Nords was nice enough to provide me with a good amount of resources for me to study into this field even more.

[EngagedToFIRE]

Please do not invest money to help someone else start a restaurant. Restaurants are one of the riskiest investments on the planet. And a new, unproven one? Yikes.

Additionally, if you need to ask these sorts of questions to a forum of internet strangers investing in any sort of private/new company is flat out reckless. I don't want to be a prick - but it's true.

Invest in broad indexes or at least publically traded companies, read and learn, and consider this type of stuff when you're filthy rich.

THIS.

You are WAY too novice to even consider such investing.  You would get taken advantage of.  A big part of investing in businesses directly is having a ton of business experience, investing experience, being savvy.  If you just want to throw money at deals, go look in to crowdfunding.  But really, you are not in the position to be doing this type of investing.  Take the money and put it in to index funds like VTSAX and focus on making more money.

[A Fella from Stella]

A great book called rich dad poor dad ..................

I, too, read these Kiyosaki books. He's a terrific writer, but nothing in the books is actually true, or how business works.

[Ann]

What are your primary goals for this endeavor?

1. Primarily to engage in a capitalist-friendly form of philanthropy?
2. Primarily as a form of entertainment: You already have all the money you need.  This way,  you can watch small businesses grow or fail, you can feel good about helping someone out.  No worries to you personally if you loose money, but how cool if you do find that diamond in the rough!
3.  Primarily as a source of income

If it is the third option, please recognize how risky this is.  The only people I know who engage in this are basically only doing it for reasons 1 or 2. 

How secure are you otherwise?  If the $60,000 is money you don’t need ... sure! Otherwise, there are many other growth opportunities out there.

[A Fella from Stella]

What are your primary goals for this endeavor?

...............please recognize how risky this is........

The key to having a restaurant is whether or not there are enough seats. If you can't seat enough people to be profitable, you'll never stay in business.

Repeating what I said earlier, PLEASE PLEASE PLEASE don't use Kiyosaki as your guide unless you're modeling his writing and speaking success.

[EngagedToFIRE]

A great book called rich dad poor dad ..................

I, too, read these Kiyosaki books. He's a terrific writer, but nothing in the books is actually true, or how business works.

Can you be specific?  I read his books before starting my (very successful) business and felt that those books, along with some others, very much shaped how I went about doing it.

[Mr Mark]

With regards to restaurants I would suggest staying away from them...

I once mentioned to a good friend and very experienced entrepreneur that I thought maybe a restaurant made sense...

Anyway my friend sort of chuckled for a moment at my foolishness. And he then pulled me aside and kindly explained I was thinking about this all wrong. All I needed to do was find a really nice place. somewhere I truly enjoyed.

I then ought to visit regularly, tipping absolutely everyone lavishly. A human ATM machine...

He further recommended I regularly give the sommelier a $200 bottle of wine. Maybe once or twice a month.

When I scowled and asked what he was talking about, he just laughed. Then he explained I would essentially "own" that restaurant after a few months... really for just a couple of grand... and without any of the headaches of ownership.

I love this story

[A Fella from Stella]

A great book called rich dad poor dad ..................

I, too, read these Kiyosaki books. He's a terrific writer, but nothing in the books is actually true, or how business works.

Can you be specific?  I read his books before starting my (very successful) business and felt that those books, along with some others, very much shaped how I went about doing it.

Would love to know more about your business success.


Regarding Kiyosaki:
A truly terrific, and extremely disheartening, analysis of Kiyosaki's life and work was written by John T. Reed.
https://johntreed.com/blogs/john-t-reed-s-real-estate-investment-blog/61651011-john-t-reeds-analysis-of-robert-t-kiyosakis-book-rich-dad-poor-dad-part-1

I not only read his books and played the board game, but studied them in great detail.


What is True:
Started some unsuccessful businesses, and then an incredibly successful book/media/game company.

US Marine Corps pilot.

Graduated from Kings Point Academy.


What Is Untrue:
Real estate. He, nor an LLC he/Kim were a part of, owned investment property.

Rich Dad.

His relationship with Buckminster Fuller. After Fuller died, he suddenly had all these stories about the mentorship he'd received from him.

[Chris Pascale]

[/quote]

After Fuller died, he suddenly had all these stories about the mentorship he'd received from him.
[/quote]

So funny you mention this. Like many people who were reading business books around 2000-2010 I was a huge fan of Kiyosaki's work, and also read some of the books from his Advisor Series. In 2017 I was searching for clips of him on YouTube and found some good stuff, but thought it was odd when he talked about Bucky Fuller. In RDPD, he mentions Fuller very briefly as being an intellectual, but never more than that the one time. In the clips, though, he quotes Fuller as being like a tough older brother type, forcing him to think through problems and not just focus on material goals.

I considered writing a straight to Kindle EBook depicting all the lessons I learned from Robert Kiyosaki, where I'd insist it's a true story.