09 May Global Business Article – Should Firms Take Investments From Overseas Investors?
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
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. Before you take a single dollar (or yen, rupee, euro,
etc.) from abroad, think about these 5 Points listed here:
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
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.
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