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19 y/o offered 6 figure investment. (Need Advice)

D.R. Zachary

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Sep 24, 2018
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Hey forum,
Since I am new to this forum I thought I'd give some background info about myself for you to
better understand the situation I am in.

My name is D.R. Zachary, I'm 19 years old & from Tempe, AZ. I've ran 3 companies in 3 years, first 2 were failures, 3rd one was sold for nearly $55,000. That 3rd company allowed me to drop out of college and pursue larger and more scalable business. After pursuing this company for the past 6 months, I've ran into a "first" and am coming to this forum for some advice. (Any feedback is appreciated!)

To start my latest company it has been anything but easy, teaching myself code, working a minimum wage job nearly 40 hrs a week, and selling my car to help fund my ambition. After gaining some momentum and generating revenues of ~$15,000, I decided it was time to seek funding. The person I decided to contact, was really the only person I knew that had remote entrepreneurial success (multi-millionaire). We spoke and after a week of phone calls back and forth, he's shown tremendous passion for the business' plan and myself, and wants to invest. I wanted $35,000 for 20% equity, but after speaking with him he wanted much more equity. To sum up a long story, he contacted his VC friend in Scottsdale and they've offered me $115,000 for 51% of the company. This offer is disheartening I must admit, I've given this company my everything and to think they made me an offer where I would lose majority equity is a bit tough.
I understand the situation from their POV, I am 19, only generating 15,000 in rev., and never been through the investment process. But I truly believe, more than the money, I am the catalyst of this company, day in and day out I work tremendously and continuously learn what I must to ensure this company's success. I believe anything they know, I would be able to learn myself (all while maintaining majority equity); but I need the money...

When the main investor and I were negotiating, and he verbally said he was eager to invest, I assumed it the process was going to take less than 2 months. I quit my job and went all in on the company. 1 month has passed since and I am running out of capital. Banks nor bureaus will take me seriously considering my age and lack of credit, I've considered the idea of speaking with other angel investors, but I must admit I feel as if my back is against the wall. I have tremendous faith in this company and my ability to scale and steer it in the right direction, but I would not have any other choice but to agree to only owning 49% once the time I run out of capital hits. Like I mentioned, any feedback is appreciated.

Thanks,
D.R.
 

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CROJosh

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Jul 18, 2018
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You’re here and that’s huge. But it sounds like you’re playing entrepreneur and running out of lily pads to jump to. Consider that you’re minimum wage job may be the best thing you have going for you - I’d double down on that and see if I could move into a sales position and build up capital.
 

Xavier X

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What are your long term plans for this business?
Is it something you perceive as your "Facebook" or "Amazon"? Or is it a mere stepping stone to other things?

If it's a stepping stone, then weigh your short to mid-term exit options and see if there is potential for significant buy out revenue - to invest in your next big thing.
On the other hand, if you see a potential for massive scale, I'd try to approach other investors.

It's a little too early in your game to practically give away the business. At 49% you're pretty much an employee, as they can override any decisions you try to make.
 
OP
OP
D.R. Zachary

D.R. Zachary

New Contributor
Sep 24, 2018
6
18
19
Tempe, AZ
What are your long term plans for this business?
Is it something you perceive as your "Facebook" or "Amazon"? Or is it a mere stepping stone to other things?

If it's a stepping stone, then weigh your short to mid-term exit options and see if there is potential for significant buy out revenue - to invest in your next big thing.
On the other hand, if you see a potential for massive scale, I'd try to approach other investors.

It's a little too early in your game to practically give away the business. At 49% you're pretty much an employee, as they can override any decisions you try to make.
I believe this is my 'big thing', there is massive room to scale. And I agree, at 49% I would be the employee, an employee doing most of the heavy lifting IMO. I'll only accept the offer if it is my last resort. I'll try and speak with other angels and see what I could work out. Anyways, I'll keep this thread updated & thanks for the feedback!
 

Bryan James

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Any debt on the company? That would help clear some things up. Also, you sound very passionate about your company and since this is still relatively early in your business and have no experience with investors, I would suggest you keep building and seeking different investors. Your age shouldn't be a negative factor in anything related to investors. In fact they should offer a lot more money and lower their stake in the company because of your young age (look what you've already accomplished!). To me, sounds like a crap deal. You raise your capital but lose your control, and it's all about control when it comes to business, especially one you're passionate about. I'm sure the investor has contacts you may not have, but I wouldn't go under 30% and probably still require a larger investment of capital. If he or she's really interested in the business as much as you are, don't be afraid to ask him/her some tough questions. If you can land one potential investor already, in such a short amount of time, I'm sure you can land more, probably with better deals as well. Either way, best of luck!
 

Nigel B

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So many questions to ask to get a real handle on this, but here are some initial reactions:
  1. When you run out of money, the investment will not help you - it is not to pay your bills or salary it is to grow the company (usually). So you need to fix your income NOW!
  2. You should not give up controlling interest in a company you are passionate about for such a paltry investment (in real terms - and assuming the business has real potential).
  3. Angels will take less equity and apply less influence - as well as often bring less contacts and leverage - but they will still want to know where their money is going. Any investor will be a PITA as they (rightly) want to know where their money is going - and majority shareholder will be so much worse!
  4. If you perceive the idea is so time-sensitive that it is worth giving up 51% (and being massively exposed to future dilution now you are not in control) - then you should probably move on to another idea UNLESS you can find a way to execute now without giving up control.
  5. As @Bryan James says - you should push for way, way better terms - that they appear to be interested is good - but not at the expense of control.
  6. At 19 I would try to find enough income to self-fund, and take longer to get there - if it is a really a massive scale opportunity then you will hate yourself when you see the other party running away with all the money. And they will. VC is for very fast, massive scale opportunities for sure - but the more proven you get, the higher the value and the better leverage you have. Don't be a (likely) temporary employee in the thing you created (side note I hope you have good proof of IP and timeline, so this cannot be lifted from under you).
  7. It's not clear what your product/service is - any chance you can crowd-fund it against future product? May be tough with you track-record but a great idea, properly protected if possible, can still be funded for a new talent.
Good luck.
 

MJ DeMarco

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A) Is your business generating sales?
B) Why is money running out? Inventory? Costs? Tiny margins?

Its very hard to answer your question without any real details on the business, the business model, and the industry.

If you want to message me, I'll be happy to give you my take on the business, and if the investor(s) are taking advantage of you, or if it's a good deal. (Use "contact us" link in the forum's footer and the message will eventually get to me.)

Welcome to the forum, great to have another local person in the Phoenix area.
 

Envision

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Take MJ up on his offer.

My opinion, don't. Anyone thats in a position to help and genuinely wants you and your company to succeed would not take more than half. You are helpless if you take his offer and have a fiduciary duty to continue to work on "his" business now. You also need to ask yourself why he offered you 4x what you're looking for and asked for more than 50%... its pretty obvious.

You're young, you're going to struggle, embrace it. Go get another job, talk to more VC's, talk to MJ, continue to scale and get more sales, get some credit history and build relationships with banks and start getting SBA loans and lines of credit.

Personally, I own all my businesses 100%.. I've had people offer me $ to take a stake in numerous ventures. I've always turned them down, I'd rather suffer and eat shit than have someone buy their way into my blood, sweat, and tears.

But that's just my opinion
 

Nigel B

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My name is D.R. Zachary, I'm 19 years old & from Tempe, AZ. I've ran 3 companies in 3 years, first 2 were failures, 3rd one was sold for nearly $55,000.
I was thinking about this. There's a perfectly fair view by us gray or graying folks that young people expect too much too soon these days. You seem to be somewhat different as you have tried and failed to build a couple of companies, had a minor success and now clearly a third-party sees value in your current venture.

Give it time. Get subsistence income again (as noted you'll need it anyway even with an investor). Use the inexhaustible energy that a 19 year old has and hold down the 40 hour slog while putting 40 hours into 'your thing'. Build it, and then sell it (all or some) - once it has sustained proven value. Transition to fulltime on 'your thing' once IT can provide you with subsistence.

Everything says this is too early to be getting investment, and there are too many people who gave away way too much equity just to keep their dream alive - but ended up killing their dream as they lost control, and then ultimately involvement and their dream morphed into something they did not love anyway!
 

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tiagosoares17.22

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If you are a do'er and are giving them 2% more (meaning control) you might be entering a game you don't wanna play.

If they can contribute a lot more than capital, you can consider going for the 51% yourself and the 49% them. But if they are only bringing the money and taking 51%... don't expect ending up doing what you want in the long run.
 

Kak

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Hey forum,
Since I am new to this forum I thought I'd give some background info about myself for you to
better understand the situation I am in.

My name is D.R. Zachary, I'm 19 years old & from Tempe, AZ. I've ran 3 companies in 3 years, first 2 were failures, 3rd one was sold for nearly $55,000. That 3rd company allowed me to drop out of college and pursue larger and more scalable business. After pursuing this company for the past 6 months, I've ran into a "first" and am coming to this forum for some advice. (Any feedback is appreciated!)

To start my latest company it has been anything but easy, teaching myself code, working a minimum wage job nearly 40 hrs a week, and selling my car to help fund my ambition. After gaining some momentum and generating revenues of ~$15,000, I decided it was time to seek funding. The person I decided to contact, was really the only person I knew that had remote entrepreneurial success (multi-millionaire). We spoke and after a week of phone calls back and forth, he's shown tremendous passion for the business' plan and myself, and wants to invest. I wanted $35,000 for 20% equity, but after speaking with him he wanted much more equity. To sum up a long story, he contacted his VC friend in Scottsdale and they've offered me $115,000 for 51% of the company. This offer is disheartening I must admit, I've given this company my everything and to think they made me an offer where I would lose majority equity is a bit tough.
I understand the situation from their POV, I am 19, only generating 15,000 in rev., and never been through the investment process. But I truly believe, more than the money, I am the catalyst of this company, day in and day out I work tremendously and continuously learn what I must to ensure this company's success. I believe anything they know, I would be able to learn myself (all while maintaining majority equity); but I need the money...

When the main investor and I were negotiating, and he verbally said he was eager to invest, I assumed it the process was going to take less than 2 months. I quit my job and went all in on the company. 1 month has passed since and I am running out of capital. Banks nor bureaus will take me seriously considering my age and lack of credit, I've considered the idea of speaking with other angel investors, but I must admit I feel as if my back is against the wall. I have tremendous faith in this company and my ability to scale and steer it in the right direction, but I would not have any other choice but to agree to only owning 49% once the time I run out of capital hits. Like I mentioned, any feedback is appreciated.

Thanks,
D.R.
What are the other terms to his offer? How much money does the company need? I'm assuming the 35k right? Do you get to pocket the rest? Are they going to run it or do they want you to? Are you going to get a salary for working for them? What happens in a second round?

Things like that. Generally speaking I like more resources for startups, so put me down in favor of raising money, but, for this deal I need a lot more details.

Also, remember, the more offers the merrier. This guy isn't the only VC on the planet.
 
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Kak

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You’re here and that’s huge. But it sounds like you’re playing entrepreneur and running out of lily pads to jump to. Consider that you’re minimum wage job may be the best thing you have going for you - I’d double down on that and see if I could move into a sales position and build up capital.
I hope you're joking.
 

Kak

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For real, apparently being 19 with 15k/mo in revenue and talking to VC's is playing entrepreneur now.

Making $8/hr sounds like a much better idea.
People should maybe learn a thing or two about a thing or two before they give "advice" to 19 year olds. I hope a mod deletes that garbage.
 
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Nigel B

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Okay OP, where'd you go? Not at the 9-5 we know that.
You are pretty much in MJ's back yard - hope you are talking to him directly as he offered.
 

MJ DeMarco

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But it sounds like you’re playing entrepreneur and running out of lily pads to jump to. Consider that you’re minimum wage job may be the best thing you have going for you - I’d double down on that and see if I could move into a sales position and build up capital.
Almost missed this... but huh?

This kid has done more in his young years than most struggling entrepreneurs will see their entire lifetime. And you advise a minimum wage job? How many VCs have offered you money as a teenager?

Whatever he decides, he deserves major kudos.
 

CreatingValue

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OP - never give up control*

Your main issue seems to be that you need money to cover your costs of living. I may have missed something, but how about getting a part-time job again? You've clearly got the ability to achieve huge success.

*Read Marc Cuban's book, or Ted Turner's autobiography (among other stories!) to learn how important control is.
 

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Santi Merino

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Hey forum,
Since I am new to this forum I thought I'd give some background info about myself for you to
better understand the situation I am in.
Hi man, I'm not going to give you advice because I know nothing about this topic yet.
Only wanted to say that what you are doing is admirable, you're an example for me at my 16s.
I wish you the best of luck!!
 

Andy Black

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Are you able to get the revenue you need from customers/clients?
 

Raoul Duke

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You’re here and that’s huge. But it sounds like you’re playing entrepreneur and running out of lily pads to jump to. Consider that you’re minimum wage job may be the best thing you have going for you - I’d double down on that and see if I could move into a sales position and build up capital.
lol hahahaha lol

Do you know his other habits as well?

You think he does this:
  1. Goes to Starbucks
  2. Drinks a latte, then drinks it while;
  3. Playing business on a MacBook Pro 2018 laptop
Am I close?
 

Rick Phillips

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@D.R. Zachary
If you want to message me, I'll be happy to give you my take on the business, and if the investor(s) are taking advantage of you, or if it's a good deal.
You've created some serious luck by choosing to post on this forum. Now bite that hand off!

My opinion for what it is worth; (Not very much now MJ has offered to speak with you 1 on 1)

  • The investor has offered you over three times the amount that you asked for. This implies that he finds your business very attractive or he is trying to blind you with a big number so that you make a bad decision with the equity.
  • Try not to give any of the company away and certainly don't cede control.
  • Keep working and bide your time. The investor wants a slice of your business, he will be back.
  • Don't let your age hold you back. As many have implied, your achievements thus far place you in the 1%. When money is involved people don't invest over six figures because they know you, if this chap wants to invest then I guarantee that others will to. Seek comparative offers.
  • If investment will lead to rapid growth in turnover and profitability seek debt finance rather than equity finance. The short term cost of this will be much lower than the long term cost of giving away a percentage of your business.
Please keep this thread alive with your progress and I wish you all the best.
 
OP
OP
D.R. Zachary

D.R. Zachary

New Contributor
Sep 24, 2018
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Tempe, AZ
What are the other terms to his offer? How much money does the company need? I'm assuming the 35k right? Do you get to pocket the rest? Are they going to run it or do they want you to? Are you going to get a salary for working for them? What happens in a second round?

Things like that. Generally speaking I like more resources for startups, so put me down in favor of raising money, but, for this deal I need a lot more details.

Also, remember, the more offers the merrier. This guy isn't the only VC on the planet.
Thanks for your feedback.

The company needs a minimum of 35k to really gain some momentum. It's been pretty asserted that they wanted to take the reigns on the company and offer me a salary (which $ amount was not disclosed). There is still much ambiguity, as I have a bit more 'official' meeting with them this Friday. I'll keep you and the forum posted.

DR
 
OP
OP
D.R. Zachary

D.R. Zachary

New Contributor
Sep 24, 2018
6
18
19
Tempe, AZ
@D.R. Zachary


You've created some serious luck by choosing to post on this forum. Now bite that hand off!

My opinion for what it is worth; (Not very much now MJ has offered to speak with you 1 on 1)

  • The investor has offered you over three times the amount that you asked for. This implies that he finds your business very attractive or he is trying to blind you with a big number so that you make a bad decision with the equity.
  • Try not to give any of the company away and certainly don't cede control.
  • Keep working and bide your time. The investor wants a slice of your business, he will be back.
  • Don't let your age hold you back. As many have implied, your achievements thus far place you in the 1%. When money is involved people don't invest over six figures because they know you, if this chap wants to invest then I guarantee that others will to. Seek comparative offers.
  • If investment will lead to rapid growth in turnover and profitability seek debt finance rather than equity finance. The short term cost of this will be much lower than the long term cost of giving away a percentage of your business.
Please keep this thread alive with your progress and I wish you all the best.
I will definitely keep this thread posted, thanks for your kind words and advice.
 

maverick

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Great work on getting started and generating revenue.

What do you need the investment for specifically? What does "gaining momentum" mean? You're going to use it for advertising purposes?

If so: how is your customer acquisition cost versus lifetime value ratio?

Checkout this great resource on (the need for) funding:
Funding Strategies to Go the Distance | Startup Secrets
 
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cy-

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Take MJ up on his offer.

My opinion, don't. Anyone thats in a position to help and genuinely wants you and your company to succeed would not take more than half. You are helpless if you take his offer and have a fiduciary duty to continue to work on "his" business now. You also need to ask yourself why he offered you 4x what you're looking for and asked for more than 50%... its pretty obvious.

You're young, you're going to struggle, embrace it. Go get another job, talk to more VC's, talk to MJ, continue to scale and get more sales, get some credit history and build relationships with banks and start getting SBA loans and lines of credit.

Personally, I own all my businesses 100%.. I've had people offer me $ to take a stake in numerous ventures. I've always turned them down, I'd rather suffer and eat sh*t than have someone buy their way into my blood, sweat, and tears.

But that's just my opinion
First of all, congratulations with the company! 19 years old!? I feel young for achieving something at 22, but 19 me would never be able to do what you did, amazing!

When it comes to the case itself, consider what Envision is saying here.

Even though 'credit' is often a dangerous word, it can be so much more valuable than giving away ownership of your company.

I went to my bank when I needed cashflow to scale HARD this summer, and they gave me quite a lot of credit that I was PERSONALLY responsible for paying in case my company would go bankrupt. Around $40.000.

This means that I risked a lot of personal debt in case it went wrong (which in my case I was confident it wouldn't), also I've probably paid a couple of thousand $ in fees to my bank throughout these few months.

But ultimately I probably saved $400.000 in equity + more going forward.
Ultimately it is of course your decision and what your gut feeling tells you and what your vision for the company is.

Whatever you choose to go with just be confident, but consider this side of things as well. Sure credit can be hard to get especially as a young person, but if you have any option like this, do consider it and put up the pros and cons and compared it with the pros and cons of a direct investment.

Please ask away if you have questions about credit or how to use it effectively as there are different types of credit.

Good luck onwards!
 

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