Below are three of the top areas of concern that minority investors should consider from a business perspective when investing in an early-stage company.

• Alignment of Economic Goals. What are your goals and how do they align with the company?  For example, if you are a fund seeking an exit horizon within the next five years, you need to closely review any restrictions that could impact your ability to exit within that timeframe (e.g., transfer restrictions and approval rights concerning the sale or liquidation of the company).  Minority investors should also engage in detailed discussions with the founders to determine whether the economic incentives for the founders and other investors are aligned with the minority investor’s incentives.  Close attention should be given to provisions in the documentation that would allow the founders to obtain liquidity or otherwise reduce their ownership interest in, or involvement with, the company.
• Obstacles to Achieving Goals. What are the company’s goals and is there anything that you can see that would be an obstacle to achieving those goals?  For example, if you expect the company to distribute products nationwide with a variety of retailers, but the company already signed an exclusivity agreement with one retailer, that could create an obstacle to your hopes for expansion.
• Economics. What are your expected economics?  It is important to think about both the money that is coming in, as well as the money that is going out. Money that is going out: Do you expect to receive a priority distribution or a liquidation preference?  If you are investing into a limited liability company or other pass-through entity, does the operating agreement or corresponding constituent document ensure that you will at least receive tax distributions to cover the tax liability associated with any allocations of profits made to you (so-called "phantom income")?  If not, you might be left in a position where you have to come out of pocket to pay taxes associated with monies that were allocated to you, but never actually distributed to you. Money that is coming in: Does the company have the ability to make capital calls (i.e., request or require that you make additional contributions to the company)?  If so, it is imperative that you understand what level of approval is required for the making of a capital call, how much prior notice you are required to be provided with (so that you can understand how much time you have to gather the funds if and when a capital call is made) and what are the consequences of failing to make a capital contribution (for example, does it trigger disproportionate dilution of your interest (i.e., greater dilution than would happen just based on the new investment coming in), or loss of certain rights, such as preemptive rights).