An Investment Gamble

Linda is considering investing into a new company. She’s been told she has the potential to make $1.5 million from her initial $25,000. Dave warns Linda about this "investment."

QUESTION: Linda in Birmingham is considering investing into a new company. It’s a $25,000 investment. She would be investing with someone else, and the company is about four years old. She’s been told she has the potential to make $1.5 million from her initial $25,000. Dave warns Linda about this "investment."

ANSWER: How are you going to feel when you lose $25,000? I don’t put money in any situation where I am a minority shareholder in a privately held company because you’ll have absolutely no vote. You have no control over anything they do. They can decide to do stupid on steroids, and you have no say. I’m going to be in control of the deal, or I’m not going to be in the deal. And I don’t put money in something where I’m just gambling. This is a raw gamble. You’ve got a better chance of this money turning into $1.5 million at the roulette wheel than you do here.

I have a lot more than $85,000 in a money market, and I wouldn’t give this 30 seconds of consideration if somebody brought it to me. I wouldn’t leave that money in a money market account making 2.6% interest. I’d be looking into mutual funds or buying a piece of real estate with cash or something else I can control and have some say over. I’m not putting my money in another man’s deal and then hope it turns out. If he’s so lame that he can’t scratch together $25,000 and he needs you to do it, he’s too lame for this thing to turn into $1.5 million.

I work too hard for $25,000 to just lose it. I think you have a 90% chance of losing that money.