The Investment Trade-Off What if an investor wants a role in running the business?

Question: We've been looking for capital from investors for several months, but it's been difficult given the current market conditions. We just met with a potential investor who's interested in giving us money, but he wants a role in running the business as well. Do you think that's a good idea?

Answer: Taking money from an investor who also works for your company can be tricky, so no matter how badly your company needs the cash, you have to think through the pros and cons before signing on the dotted line. For starters, an investor who's also an executive may act more like a boss than a partner. What's more, it may be difficult, if not impossible, to fire an executive who owns a big chunk of your equity. That's why Tim Sciarrillo, founder of consulting firm The New England Group Companies LLC, warns that "each situation must be analyzed individually, and many factors must be taken into account to avoid pitfalls." Even if you and your new partner get along fine, failing to structure an arrangement like this properly--and trying to do it yourself without consulting an attorney or accountant--can lead to tax problems down the road, as well as securities violations and lawsuits.