5 Questions You Should Answer Before Investing in Your Friend's Start-Up Idea

If names like Dolce & Gabbana, Larry Page & Sergey Brin, or back home – Binny Bansal & Sachin Bansal, inspire you to invest in your friend's start-up idea or become a co-founder, then here's a list of 5 quick questions you must answer before taking the big plunge:

1. What is the USP and is it truly a USP?

Each start up is born with an idea that looks like a Unique solution to an existing problem or a great service that is not even ideated as yet. Well, that's what your friend might convince you at the first place. Understand the USP of your friend's start up and think through if you too independently find this USP – a Unique Selling Point in every sense?

2. What are the Potential Risks?

Assessing and knowing potential risks in a start-up is important to understand what and how much is at stake. Also, if you friend knows these potential risks, the chances are that his/her idea is well thought through and devised. It is crucial to understand your risks to find solutions that make you steer clear of falling in them.

3. Scalability?

Your friend should have a clear cut plan on the scalability of his startup. This blueprint is what will get you VC fundings, from where to source the goods or services, get your hiring plans rolling and ultimately scale your venture. If your friend is clueless about how his idea is going to shape in numbers, it's just a castle in the air.

4. Who gets What?

While you both could be chuddy-buddies, but when it comes to finances, it's better to grow out of diapers and think independently like adults as if there is no relationship. That's the only way to play long term with anybody including your friend. The ease and transparency with which you can lay out investment and profit-sharing, will actually lay a foundation that can determine whether it’s worthwhile to invest or not.

5. Who Else is On Board?

Last but not the least, be very straight to ask about others who could be sailing in the same boat as you. In a start-up, too many chefs can definitely spoil the broth and you would need to ensure that you attune well with other chefs as much as you do with your friend. Also, be very clear on the exit plan too.