We need to take on risk to achieve almost anything, but how much do we risk? I've worked in the risk and assurance sector for 18 years and have helped numerous businesses and their respective boards to rethink the upside of risk and assist with strategies to manage these risks to within tolerable levels.
Hi there.
My initial thoughts here is that the risk/reward payoff of between 2 and 4% seems low. In essence, this deal feels more akin to a venture capital proposition (seed capital), if the business proposer takes onboard all operational activities and doesn't invest anything. More information here would be helpful regarding this point, but under this form of deal, I'd be seeking a much higher return on my investment.
Secondly, and to the point of others on this thread, what percentage of the business does your $250k buy into? Has the proposer invested anything or provided anything of tangible value to the business (product, invention, patent, active customers, confirmed orders, etc.)? It's important here to understand what exactly your $250k (per transaction) is buying into.
Another question I'd be asking, is what will the funds be used for and what level of comfort do you have that it will be well managed and equate to growth/value.
Also, how many others (if any) will potentially also be investing (both now and into the future). The more invested, the further your return is diluted.
Knowing these aspects, one potential structure here is that you could be an equity parter with x% ownership (based on the above factors) of the business. I would however caveat this by urging caution and making sure I did a thorough assessment of all the angles presented here before progressing. There is some good general advice here so far from a few of the members and I hope these give you some good ideas on how to proceed. Feel free to reach out or to ask more questions here.