There have been a couple of years where, after maxing out contributions to retirement accounts, I've had some disposable money left over that I'd like to invest in something other than publicly traded funds.
I live in a community with lots of youngish small business owners of various types, food trucks, restaurants, retail, fabrication etc... Many of these people that I've spoken with lack growth capital, and I've often wondered if it would be possible to invest in businesses in these situations, as a sort of mini-angel investor.
I've done a fair amount of research and feel like the following scenarios would qualify under a friends and family round 504 exemption:
- I invest X-thousand in a local food truck whose owner I'm acquainted with. I do this in exchange for Y% of revenue until Z ROI is achieved.
- I lend X-thousand to a local fabrication lab to allow them upgrade their equipment at an interest rate of Y% until the loan is repaid.
Assuming I've done my due diligence regarding these businesses and their owners, and have this cash available, are there legal hurdles that I'm not aware of to this type of investing? Would the business owners have to file with state or federal regulators in these situations?
I'm specifically talking about USA - Idaho, but any general advice for anywhere in the US is also appreciated.
The question isn't about financial risk, just about legal risk. I'm aware of the financial risks in this type of investment. I'm specifically looking for authoritative resources, not just opinions.
More specifically, I'm aware of three ways to approach this:
- Silent Partner (which I'm not interested in, due to liability issues).
- Act as a lender, no regulator hurdles that I'm aware of, but you're restricted to specific interest terms of a promissory note, whereas I'm more interested in equity and or profit/sharing.
- Friends and Family round investing, which is what I know the least about.
I'm interested in information regarding option 3, or additional options that I'm unaware of.