Approached by investor who wants to be silent partner

[randomnumber314]

So I've thought a lot about this, had the fortune to chat with vigilante about it too, and I've decided I'm going to move forward with an investor's offer to partner.

My thought is to offer $100k for 10% with a 5-year option to buy him out/he can force me to buy him out.

I know I'll give him excellent return on investment, and I am pretty sure he gets that which is why he approached me.

Curious what other people's advice/experience is?

 

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[DaRK9]

I haven't done it myself, but I know two people who have gotten investors and 100k for 10% seems a bit slanted for a new company.

This is just standing from the sidelines though. Hopefully someone here who has gotten investors will chime in.

 

[randomnumber314]

I haven't done it myself, but I know two people who have gotten investors and 100k for 10% seems a bit slanted for a new company.

This is just standing from the sidelines though. Hopefully someone here who has gotten investors will chime in.

It may be, I'm quite new to the business...that being said it's about 2-2.5x what we're grossing per month right now, so I don't know how unrealistic it is.

 

[DaRK9]

It may be, I'm quite new to the business...that being said it's about 2-2.5x what we're grossing per month right now, so I don't know how unrealistic it is.

There are a few valuation calculators out there. Might be worth it to look into them.

 

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[pro]

Try this
i) Tell the equipment manufacturer what your sales are like and have him issue you a loan (even at XX% interest) secured by the manufacturer's own equipment. This way you dont give up equity or have the complications involved.

Always pay him on time and ask for more if needed.

ii) Ask your customers to pay you in advance for a discount such as 2% and you can get more cash upfront

Do great work for your customers.

 

[randomnumber314]

Try this
i) Tell the equipment manufacturer what your sales are like and have him issue you a loan (even at XX% interest) secured by the manufacturer's own equipment. This way you dont give up equity or have the complications involved.

Always pay him on time and ask for more if needed.

ii) Ask your customers to pay you in advance for a discount such as 2% and you can get more cash upfront

Do great work for your customers.

I will see what I can do about i). It's not just A manufacturer, it's a truck from so and so, and a saw from another vendor, and a tamper from another vendor... So I like your idea, I will see what I can do (with or without partner)

I get 50% down (covers time and material) and 50% upon completion. So far (knock on wood) that part of the business has only seen a couple late payers.

 

[jazb]

Is your business worth a million ?

 

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[randomnumber314]

Is your business worth a million ?

It's a moving target, only been up and running a couple of months. That being said, I don't see any reason we can't hit $1mm this year if we have investment...so it would be worth at least $1m

 

[TheBaker]

So I've thought a lot about this, had the fortune to chat with vigilante about it too, and I've decided I'm going to move forward with an investor's offer to partner.

My thought is to offer $100k for 10% with a 5-year option to buy him out/he can force me to buy him out.

I know I'll give him excellent return on investment, and I am pretty sure he gets that which is why he approached me.

Curious what other people's advice/experience is?

Becareful.
If you take the investment and he or she comes on as a silent partner. Have your lawyer set up a vesting schedule.
Second clearly define who owns what.

If you really want investors. Look for value added angel investors. Not venture capitalists yet.
The job of your value added investors will be not only be to invest in you but make connections to build and strengthen your business.
Try to own more than 51% of your business.
What you'll be raising essentially is known as a seed round ranges anywhere from $500k - $1M.

So theirs 2 types of fundraising from angel investors.
Convertible Debt and Preferred Equity. In the early stage I recommend convertible debt.
Here's a quick article about convertible debt http://www.entrepreneur.com/article/159520
Preferred equity is straight forward.

If your offering $100k for 10% that means your company is worth $1M
100,000/0.10 = $1M

To figure out if your company is worth $1M depends on what industry your in.
With tech I know its 2.5-4x your annual revenue.

How do I know this stuff?
My tech startup is incubator backed so they pretty much engrave this stuff in your brain.

Hope I helped.

 

[randomnumber314]

Becareful.
If you take the investment and he or she comes on as a silent partner. Have your lawyer set up a vesting schedule.
Second clearly define who owns what.

If you really want investors. Look for value added angel investors. Not venture capitalists yet.
The job of your value added investors will be not only be to invest in you but make connections to build and strengthen your business.
Try to own more than 51% of your business.
What you'll be raising essentially is known as a seed round ranges anywhere from $500k - $1M.

So theirs 2 types of fundraising from angel investors.
Convertible Debt and Preferred Equity. In the early stage I recommend convertible debt.
Here's a quick article about convertible debt http://www.entrepreneur.com/article/159520
Preferred equity is straight forward.

If your offering $100k for 10% that means your company is worth $1M
100,000/0.10 = $1M

To figure out if your company is worth $1M depends on what industry your in.
With tech I know its 2.5-4x your annual revenue.

How do I know this stuff?
My tech startup is incubator backed so they pretty much engrave this stuff in your brain.

Hope I helped.

Very helpful. Rep transferred.

 

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