How to protect yourself as an investor?

investor profile

February 23, 2021

by an investor from University of Maryland at College Park in Washington, DC, USA

Apologies for a beginner question or if there is already a thread.

How do minority investors protect themselves against legal issues and risk of fraud or theft? I see a couple of deals that I would be interested in but don't yet feel comfortable with the risk involved and how to protect my investment.

Any guidance or links would be greatly appreciated.

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commentor profile
Reply by an investor
from University of Pennsylvania in Washington, DC, USA
Ishwar - I'm an active investor in both self-funded & traditional search funds. In general, there's more standardized template and structures in traditional search with protection for investors especially since investors are the majority.. Self-funded has more diversity in approaches and in general less protection as the searcher is usually the majority owner - there are some basic governance protections that are best practices but quite important to do your diligence and understand the risks in the model. Looks like you are in DC - so am I. Happy to chat - redacted
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Reply by a professional
from University of Minnesota in Minneapolis, MN, USA
Fundamentally, I think there are two imperfect ways to protect yourself: 1) protect yourself with contracts (Operating Agreements, etc.), which ultimately may require litigation and other practical considerations before enforcement, and 2) only investing in people/businesses you trust, which can be accomplished via due diligence, or other, less quantitative means. There are no guarantees.
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