SHOULD YOU INVEST IN A FRIEND'S BUSINESS?

Ben & Jerry’s was started by childhood best friends. Four grad school buddies founded Warby Parker. A long friendship-turned-partnership brought Clear to TSA security lines across the U.S. A shopping trip between two pals launched size-inclusive clothing brand Universal Standard.

Yes, stories of successful business partnerships between friends exist. But for every Ben and Jerry, there are countless Janes and Joes ticked off at their college roommate for stiffing them on a business loan.

Mixing business and friendship can tank a relationship. So, if a classmate, colleague or childhood friend asks you to invest in their business, you need to look at it from all angles.

THINK LIKE A PROFESSIONAL INVESTOR

Don’t let your personal relationship cloud your business judgment. Evaluate the request as if it was coming from a stranger.

Does the business offer something unique? Does it fill a need in the market? Does the founder have business acumen? Do they have experience in the industry?

“A professional investor always wants to see where the ‘Aha’ is,” says Dileep Rao, clinical professor of entrepreneurship at Florida International University. “Is this likely to become a major company? If the potential is huge, it makes sense from a financial perspective.”

You also need to know the terms of your investment and what you’re getting in return. If your friend is asking for a business loan, discuss the repayment timeline and interest.

If your investment is in exchange for equity, review the terms. Is it solely a financial transaction, or will you have access to and input on business operations?