The framework of joint investments can be credited for making possible the most prominent businesses in various industries and markets. While most people get into joint ventures comfortable with the mutual profits and the sharing of risks, several investments never really make it to their big-business status, all due to risks that could have otherwise been minimized or avoided.
Possible Risks of Joint Investments
While the rewards may outweigh the risks in most joint investments, some risks may prove fatal to the venture if you do fail to find a work-around to them. Here are some of the possible risks that may make life hard for your joint venture.
Clashing Investor Objectives
When getting into a joint venture investors may have differing opinions and goals for their involvement. Some of these opinions are often discussed with the other investors when it’s rather too late or sometimes not.
This can make an investor not fully committed to the venture and not fully play their part.
Unequal Involvement of Investors in the Venture
In joint ventures, an investor may feel as though they’re getting the shorter end of the stick, either by having to do more than they should or getting returns that do not match their inputs to the investment. When this happens and there’s no hope in sight, an investor may either go slow on their roles and responsibilities or step down from the venture entirely.
Insufficient Planning and Research
A joint investment is only as successful as the effort put into researching and planning for it. When a venture is initiated with improper planning and research, there’s a high likelihood that it will encounter more challenges than is necessary and maybe even never make it to its intended goals.
Ways To Minimize Risk
In joint investments, just like all other ventures, risks are ever-present, but this shouldn’t mean the end of things. Here are some of the measures you can have to minimize the risk of your joint investment.
Work on Having a Clear and Common Set of Objectives
During the inception of the joint investment, there must be a clear understanding of all the partners’ objectives and goals. To be most effective, you should see to it that all the partners are given a chance to have aired out their views regarding the venture. Once this is done, there is a reduced chance of a clash of ideas once the venture is running.
Ensure Communication Among Investors Is Ongoing and Detailed
The joint investment at its core is an investment relationship among partners, but a relationship all the same. With this, you should ensure that there is continuing clear and open communication among investors. You can do this by setting up the communication channels either in-house or through professional institutions.
This will ensure that the conditions of the joint investment are well known to all those involved, therefore reducing the chances of conflict among investors.
Have Proper Management and Leadership
A joint investment is at a higher risk of failure since decision-making regarding its affairs is dependent on a set of individuals. This means that there is a need for proper management structures of the venture, which you can achieve either among the investors themselves or externally in professional institutions.
Ensure Due Diligence in All Elements of the Venture
To completely maximize the success chances of your joint investment, you should never leave anything to chance. Since this may prove overwhelming at times, you should know that you have the option of sourcing professional services like SPV administration, to ensure all your investment affairs are in order.
Guarantee Accountability Through Well-Termed Contracts
The contracts binding the investors together in the joint venture should have well-stipulated requirements of all the partners and repercussions to be faced if the requirements are not met. You should ensure that the joint venture contract is well worded and free of any loopholes.
Establish Mechanisms for Dispute Resolution
Joint ventures are prone to conflicts among investors, which often puts the venture at a high risk of failure. It would be best if you had conflict resolution mechanisms well stipulated in the joint investment contract.
Finally Getting Into a Joint Investment
Just like every other venture, joint investments come with hurdles and triumphs. For your joint venture to have higher chances of success, there should be a deliberate and proactive approach to ensuring possible risks are minimized if not entirely done away with.
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