The difference between passive and naive investors

fundraising Oct 22, 2020
If you are looking to work with investors, it is important that you learn how to tell the difference between a passive and a naive investor.
Whilst it might sound ideal to have an investor who does not ask many questions before handing over their funds, that is not necessarily a good sign.
A passive investor is someone who:
  • asks the difficult questions upfront. They are keen to carry out thorough due diligence in order to be able to make an informed decision. They become passive only after the project has started because they are comfortable with their decision.
  • is an experienced investor, either in property or other assets. They understand the risks and rewards of making an investment and are comfortable with being passive.

A naive investor is:
  • an inexperienced investor. They are not asking the difficult questions because they are nervous and do not know the right questions to ask. 
  • passive at the wrong phase of the relationship, i.e. not asking questions when they should be, and asking questions when they should not!

To save yourself from potential hassle, it is vital to identify if your prospective investor is passive (and savvy), OR naive (and inexperienced).

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