In International Business, three trends are coming together that make American companies look more and more at getting overseas investors: money is easier to move internationally, there is an abundance of new wealth coming from the third world, and there are scores of new intermediaries saying they are connected to this wealth. These intermediaries take the shape of brokers, investment bankers, P/E fund managers and management consultants. Opening your firm to foreign money also opens up many cans of worms. Suddenly your firm will be dealing with issues of culture, law, taxes and transaction costs. Make sure you have answers to these 5questions:
1. Will your other investors mind? Will your current investors care if more funds come from country X? Does country X help or hurt them financially, legally or psychologically? Getting your current investors’ permission might be necessary.
2. Will your overseas investors have access to your company’s trade secrets? Frequently, investors want to understand and potentially copy your intellectual property. It may be impossible to track the actual source of overseas money. Thus, some overseas investor could be connected to a real (or future) competitor. Investment dollars might come from a real (or future) client or vendor. Will they be able to access your “secret sauce” and do you mind if they do?
3. Do you understand how to deal with the investor’s culture? We are back to the No. 1 stumbling block in international business: the differences in culture. If your way of doing business is completely different than what your investors are accustomed to, then there may be potential conflict on the horizon. How will you deal with their views on risk, profit, law, ethics and management? How will they deal with yours? How much education and hand-holding will be necessary? How active will your investor be in running your business?
4. Do you realize it may take more time to deal with an overseas investor? The single biggest cultural difference is our perception of time. The overseas investor may be willing to invest, but not as quickly as your firm wishes. Investors are often known for showing high interest initially, and then stalling. In places like Asia and the Middle East, that syndrome is even more widespread.
5. Are there tax consequences to your company taking foreign money? Even if you completely and fully understand the U.S. tax ramifications, does country X’s tax practices agree with ours? Are you suddenly filling out a tax return for country X?
Few investors are in a rush, especially when investing overseas. While they are taking their time it’s an opportunity for your firm to take yours and do proper due diligence.