Three Questions To Ask Yourself When Investing Overseas
Investing internationally, whether from the US or from another country, brings with it a host of exciting opportunities – your money may go further, you may have more impact, you may have a higher upside, you can possibly go visit the people that you are investing with and even bring your family – but also a variety of potential pitfalls. Here are a couple of questions to ask yourself, before you jump in.
Question 1: What do I want out of this investment
Am I seeking impact, or return, or both? Do I plan to recycle the funds into other investments in the same country/ currency? Do I expect constant updates on the status of the company, or am I ok with periodic or even annual updates (or none at all)? Clarifying your expectations ahead of time, especially where there are different cultural norms and expectations at play, can save you future heartache.
Question 2: What on the ground support exists
Funding an overseas investment generally involves additional parties simply through the fact of making the transfer internationally and papering the deal. Do I expect that a loan is secured against assets, and that everything is “buttoned up” with local legal filings; if so, I need a different level of support than an equity investment in a Kenyan startup. Do I understand the quality of the audited reports that I am going to receive? Is there a middleman or a local advisor who is representing a group of investors and can speak on our behalf? Considering what kind of on the ground support is worth the additional cost in practical terms, and whether local support can help maximize your return and minimize the risk in a cost-effective manner is a key part of investing overseas.
Question 3: What level of risk am I prepared to accept
Recent economic turmoil has reminded us once again of the relative safety of certain currencies; and yet, we constantly also hear that for example the US dollar may depreciate. Even the best currency speculators often get it wrong; the question to ask yourself is, what level of risk are you prepared to accept. If you are planning to recycle the returns into the same country, or you are a global investor/ donor, then currency risk may sound scary, but in reality perhaps should not affect your investment decision. In addition, understanding the local political climate, from the economic trend of the country, to whether the company you are investing in is likely to receive unwanted political attention, is also key to making an informed overseas investment decision.
These are just three of the many factors to consider when looking at investing internationally. At Lighthouse, we analyze our potential investments from the investor’s perspective, helping the investor to consider their own goals and needs so that we can tailor a transaction to suit their goals.