Considerations for investing in US private company

[AsioOtus]

Hi,
I've had a quick search of the site and can't see anything similar, so posting my first topic. Hope that's ok, but please direct me if there is a better place to put this.

I have the opportunity to invest in a private US start up company (incorporated in Delaware), either via 2 year convertible bonds or direct equity.

I've been trying to look at legal and tax issues associated with

• future initial investment
• any dividend payments
• and, capital gains from any sale

but am struggling to find anything.

I'd be grateful for any advice or sources of information to review to help in my appraisal. The opportunity looks interesting, but I am concerned the overseas complications might skew the attractiveness.

Thanks

[Alaric]

I have the opportunity to invest in a private US start up company (incorporated in Delaware), either via 2 year convertible bonds or direct equity.

My first thought is to check whether it's a potential scam. It isn't unknown for boiler rooms to promote American companies which on closer investigation are just shells and furthermore have shares you couldn't sell even if they had a value.

Otherwise you need to read up on W8-Ben. It's the form overseas investors need to complete to avoid in part US taxation at source.

[dspp]

Even if it isn't a straightforward scam you need to check whether it is a sensible investment proposition, including thinking through the risks.

If the scale of the investment is too small to justify getting expert advice, then it is also likely to not be worth going all the way to Delaware to invest it. Basically you sound out of your depth and should probably work on the basis of NOT investing in this unless you can get all your questions answered, and all your risks covered off.

regards, dspp

[AsioOtus]

Thanks for the replies and advice.

I've known about the founder for the last 3 years, although not personally until we've spoken recently, and been following progress closely. I am still digging, but am confident this is genuine opportunity.

I think completed a W8Ben in the past for my broker when investing in US stocks through an ISA. Given this would be outside of that, and I don't think I can do via my pension, it looks like I would need to complete another W8Ben and declare any dividend and capital gain here, but nothing would be payable in the US.

Obviously I need to evaluate the investment itself, but it doesn't look like there any material technical reasons why I shouldn't do it, so long as I declare everything properly both in UK and US.

[TahiPanasDua]

Thanks for the replies and advice.

I've known about the founder for the last 3 years, although not personally until we've spoken recently, and been following progress closely. I am still digging, but am confident this is genuine opportunity.

I think completed a W8Ben in the past for my broker when investing in US stocks through an ISA. Given this would be outside of that, and I don't think I can do via my pension, it looks like I would need to complete another W8Ben and declare any dividend and capital gain here, but nothing would be payable in the US.

Obviously I need to evaluate the investment itself, but it doesn't look like there any material technical reasons why I shouldn't do it, so long as I declare everything properly both in UK and US.

Despite the very good advice above you seem determined to proceed. This is a bad idea.

[AsioOtus]

Despite the very good advice above you seem determined to proceed. This is a bad idea.

Can you please elaborate on why you think its a bad idea. I haven't given info about the op itself, yet both you and dspp have cautioned me away from this. Am I right to think this is because the way I have posted/explained is coming across that I don't know what I'm doing? I am guessing its this and not because its not an overseas investment in the US per se.

I am genuinely interested as I always want to improve my decision making and your cautions are steering me away from doing this. I am a qualified accountant and have alot of M&A experience evaluating acquisition opportunities, so I am comfortable assessing opportunities. However, this is not work related and a personal investment. I have no real experience investing overseas, other than in a couple of NASDAQ traded shares via a trading account, which was my main concern, nor directly into a start up in this area. The investment would have been very high risk, as a new start up in the arena its trying to get into, its really a gamble (and whilst I don't think it is, it could also be a scam).

As I said, I am unlikely to do it now, but I'd genuinely appreciate any constructive feedback explaining why you've both posted the way you did.

Thanks

[dspp]

Whilst I am no expert (are any of us) I have a fair amount of experience in what outsiders think are all the same:

a - personal investment (i.e. TLF stuff)
b - professional large scale investment decisions (£100m+)
c - newtech start-ups (F&F through to A & B & C, <£2m-£10m rounds)

What I have observed is that even people very used to, and professional at, A & B get C completely wrong. I am also used to seeing C-type in USA, UK, EU (and elsewhere) and have oft-noted that the general awareness of the pitfalls and cultural norms is not what it needs to be for people who stray between the different locations. I have also watched finance-sector types get tech-sector stuff so horribly wrong you would not believe.

For me your story is just ringing too many alarm bells. That is not to say it might not be a fantastic opportunity, as it might be. If you do decide to go ahead and have a tilt at it then what I would suggest is that you post up your experiences and lessons learned for others from time to time, sanitised to protect the specifics of course. You are not the first to ask and this is how TLF can help build up the experience base.

regards, dspp