A friend from college (and middle school and elementary school, for that matter) has talked to me a little about his company, a start-up working on technology tangentially related to Internet advertising. He's recently mentioned an opportunity for investing some money in it.
I know it's no fly-by-night scam, and the general premise of the business sounds worthwhile, and they have some reasonable-sounding partners. Furthermore, I have a significant amount of extra money sitting around, so I think I can stand the risk on putting in a couple thousand dollars, and it wouldn't really hurt even if I lost every penny. (No, I don't need advice about other things I could do with the money. Yes, my tax-sheltered retirement accounts are full.)
Most of my investing experience so far has involved mutual funds and ETFs, with the occasional short-term speculation on the headlines mostly for fun (e.g. I made about enough off some random BP options to pay my tax preparer this year). An intermediate-term bond fund is a relatively straightforward instrument. A startup like this, though, is pretty opaque. Before I respond and say "maybe, tell me more", I'd like to know the questions I should be asking.
What sort of information should I request? What should I be looking for? What are the red flags I should watch out for? What sort of pitfalls and potential gotchas might I find?