Minimizing Investors ownership with market validation

[hatzil]

I'm an apprenuer.
let's assume this: I have a killer idea, awesome developer team, user data base and initial version of my app running with 200 users. they even click fake buttons that was supposed to give them premium version of the app, meaning they are willing to pay for it.

The thing is this- well, I have done all the hard stuff, and my idea is validated pretty good. but in order to get to the next step, I need investors cash. since my revenue will take a lot of time to generate enough cash flow to get to this next step safely, I want to minimize the ownership of investors as much as possible.(after all, I assume that I highly minimized their risk)
Those of you,awesome people who might help, maybe can help me answer these questions?
1. is it possible, for example: to promise to give an investor static 20K $ for 10K $ investment in the future; or all they want is ownership percantage?
2. Do anyone have a good book/other sources to share? or any other info that may help too

as you can assume, I'm a completly newbie to raising capital .
I appreciate your time & effort.

 

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[applesack]

Is it possible, for example: to promise to give an investor static 20K $ for 10K $ investment in the future; or all they want is ownership percentage?

I have a very similar question (+ perhaps a couple ideas that might help):

I have a health and beauty product company with 3 initial products. Immediately I need about $25k for inventory, and I do not want any partners or sale of stock. I assume I will also need to finance inventory this fall before holidays, etc.

What I have offered is this:

Offer
You, the {investor}, can purchase $1k, $5k or $10k of inventory (at cost, but I don't tell them my cost... just general figures). When {investor} purchases X amount of inventory, they also get claim to a percentage of an additional, identical amount of inventory [1]. These products "belong" to you, the {investor}, but you never see them (unless for some reason you wish to take possession of them). As {company} sells the owned products, {investor} is paid the exact principle they invested to purchase the products. Then as {company} sells the revenue share products, {investor} is paid their original principle price multiplied by the revenue share percentage.

Example
So, a $5k investor "buys" 350 products, and a 67% revenue share on 350 additional products. As the initial 350 are sold, the investor is paid $14.29 on each sale. Once those 350 are sold, they have their $5k back. Then as the next 350 are sold (on which they have revenue share) they are paid $9.57. Once these are sold, then have profited an additional $3,350.90

Response
The response has been totally predicated on the site, the site rank and traffic, and pre-sale interest, but the people I have talked to have all been interested. I am waiting till I have all the product collateral finished to actually pull the trigger on taking the money... so I cannot really tell you if it is a success or not.

[1] Inventory ownership schedule:
$10k investment → 100% Ownership of 700 product unit sets → 100% revenue share interest in an additional 700 product unit sets
$5k investment → 100% Ownership of 350 product unit sets → 67% revenue share interest in an additional 350 product unit sets
$1k investment → 100% Ownership of 70 product unit sets → 20% revenue share interest in an additional 70 product unit sets

 

[G-Man]

That's the most convoluted inventory financing arrangement I think I've ever heard, especially if it's only for 25k.

I finance inventory for a business I'm in on the side, rarely more than $20k a pop, and here's how I do it: I give these guys a credit card to use to purchase the inventory (I use a credit card and not cash for several reasons), then they pay me 8 points, but they can't charge the card for another buy until they've turned the whole first amount.

Propose that to someone. You might get a bite. Might not.

EDIT: When I say 8% I don't mean APY, I mean they pay me 8% over principal, whether it takes them 90 days to turn or 10.

 

[applesack]

They pay me 8% over principal, whether it takes then 90 days to turn or 10.

Very interesting, and yes... simpler. But, I am a startup, this is not just a Christmas holidays inventory boost. Wouldn't you want more than 8 for that?

Edit to add: even a bank would want that much, and my balls in a safe deposit box!

 

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[G-Man]

Very interesting, and yes... simpler. But, I am a startup, this is not just a Christmas holidays inventory boost. Wouldn't you want more than 8 for that?

So, the point isn't just the rate, it's that the nature of the deal requires turn. Nobody will finance inventory at any rate if you can't show turn. If you're not confident you can turn, or confident you can make good on your obligation, then you shouldn't borrow.

Obviously 90 days might be a little short for say, medical equipment, but we're talking about consumer products.

 

[G-Man]

Edit to add: even a bank would want that much, and your balls in a safe deposit box

No private investor has cheaper money than a bank.

If you were bankable, you wouldn't need to come up with creative financing options.

 

[applesack]

Nobody will finance inventory at any rate if you can't show turn. If you're not confident you can turn, or confident you can make good on your obligation, then you shouldn't borrow.

Okay, yes... so, instead of looking at this as financing inventory, look at this as financing a startup. I have a gorgeous site with good content traffic and great product reviews from beta testers. Would this interest you, or would you find it ridiculous?

Edit to add: or, perhaps, would you prefer a simpler 8 point offer just because it seems more "regular"?

 

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[G-Man]

Okay, yes... so, instead of looking at this as financing inventory, look at this as financing a startup. I have a gorgeous site with good content traffic and great product reviews from beta testers. Would this interest you, or would you find it ridiculous?

Edit to add: or, perhaps, would you prefer a simpler 8 point offer just because it seems more "regular"?

I can't really speak to that. You'd have to talk to someone that takes equity positions in startups. You'd probably be looking at some sort of convertible at a usurious rate.

 

[applesack]

You'd have to talk to someone that takes equity positions in startups. You'd probably be looking at some sort of convertible at a usurious rate.

Yeah, I don't want any equity positions... just points. Basically they invest $10k and once I sell double the inventory, they get $20k. The initial deals will be way better than the "inventory boost" deals down the line. We shall see how it goes.

 

[applesack]

@G-Man after hearing your thoughts though, I should probably pay out at a different rate... one that heavily favors the loan at the beginning. Similar to typical interest payouts.

 

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