Help! Investor wants to invest in my business!

[atmosphere13]

I need your advice and help with an investor who wants to be a part of my business

At one of my local mastermind groups I was pitching the vision for the future of my website, its products and impact on the world. After the meeting, a very successful real estate investor approached me and really believed in me. We talked for about a half hour and to sum it up he wants to be partners in my vision/business. He can provide capital, his network, and himself which he is a self made entrepreneur and real estate investor doing million dollar deals regularly. He understands that there will not be money made in the short term but he really believes in the long term success of this business. He then asked me, "what percent of the business do you want?" I replied I need more time to think about this, he understood so we planned a lunch for this Sunday.

I am not sure how to handle this. I never thought this would happen. I am just trying to create products that solve people's problems and this what I have been focusing on for the past year. It caught his eye and he is really passionate about the subject and wants to get involved. We briefly talked about goals and they are very aligned (help people live better, change the world one person at a time, no fluff bs products, all real valuable meaty content)

I am optimistic about him being a partner because he can add tremendous value to the business, mainly scaling the business. My arms are spread to thin with working 50 hours a week at my day job, marketing, product development, managing bloggers, you know the drill.. I just can't do it all. But I do not want to give up this company. I've put my blood, sweat and tears into this thing and don't want to sign off a big chunk in one sunday afternoon. Would it be fine if I said I want 70% him 30%. Or even more. From an investor standpoint how would you react?

Background on business in 2012:
Products: self help digital products, ebooks, video products, adsense
Revenue: $10,000
Profit: $5000
Visitors to site: 22,000

What kind of questions should I ask him? How can I better prepare for our meeting tomorrow?

Ask me questions I could use your help.

 

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[roc]

There is no reason to beat around the bush, ask him directly what he wants and what his expectations are. From there you should be able to gauge his interest, as well as the end goal. It sounds to me you don't what to part ways with your site, so that should answer some of your questions. Roc

 

[Esquire]

What percent of your business should you offer him ...?

That's easy.

ZERO !!!

Let's me repeat that (in case you missed it) ...

Z-E-R-O ... Zero.

To quote the esteemed (self-made billionaire) Felix Dennis:

"Never, never, never hand over a single share of anything you have acquired or created if you can help it. Nothing. Not one share. To no one. No matter what the reason -- unless you genuinely have to. ... Ownership is not the most important thing. It is the only thing that counts." (Excerpt: "How to Get Rich" Page 171)

Download his book (right now). Spend the $9.99. Read that Chapter (Ownership! Ownership! Ownership!). Do it NOW.

I'll let Felix explain his reasoning. You'd be making a terrible mistake.

You cancel the meeting ... and you give him ZERO.

That aside:

From a lawyer's perspective ... striking up a partnership ... without a DAMN good reason for doing so ... and a ROCK SOLID and WELL THOUGHT OUT partnership agreement ... is (hands down) one of the DUMBEST things you can possibly do (unless, of course, you want to make a handful of lawyers rich).

Do you know how many things can and do go wrong when a partnership or joint venture agreement is not well thought out and conceived at the outset ...? Litigation city, baby.

And from what you just described ... you don't have the wallet to fight that fight. You are just setting yourself up for one nightmare legal scenario after another. Happens all the time.

And I sure as hell do not hear a compelling reason to bring him into the fold.

Walk away from the table ... tell him thanks for the interest ... and never entertain another offer until you are ready to sell.

NEVER.

 

[DeletedUser2]

Being an investor, and having raised money from investor is a 2 edged sword.

sometimes 100% of zero... well, its still zero.

the thing you should be focusing on is getting it up and working, then minimum viable product, then optimize your deal until its 1 dollar in 2 dollars out (or what ever metrics you decide on) THEN you go as for money, you give up the least amt, and every dollar you spend goes right into scaling.

yesterday, I got an investor to agree to give me 500K for a little side project. he got 15%.

every single one of those dollars gets plowed into scaling a business, that we already built. we know our numbers. for every dollar in we get 1.65 out over a 6 month period or a total of 130% ROI. so was it worth it to get 500K for us? well we can roll that 500, 2x a year, and generate an extra 1M plust in profits. so ya, it does speed it up.

additionally, the investor is connected to some other people we would like to be talking to and could use the inside contact.

there are alot of ways to make money. and giving up a little piece is part of what I have come to be ok with, as long as it fits in the long term plan. I like Felix Dennis, BUT he does things differently than I do. Everyone does.

YOU have to figure out if an investor will move you forward in the right direction.

more importantly it has to be the RIGHT investor.

I just turned down a 12M dollar financing yesterday, because it was with the wrong investor. he started to pull some bullshit early, and that's a Big NO NO in my book. if it is like that now, it will only get worse later.

we are not in a hurry by any means, and so we can turn down bad offers. That was a bad offer.

the points to consider when you talk with him

1. does he fully understand your biz NOW, and the plan for the future
2. is he willing to be a PASSIVE investor? hands off, you steer the ship, no questions.
3. does he understand the risks that this might NOT work. if so GOOD. then you do everything you can to make it work.
4. how have some of his other joint ventures, investments, partnerships gone in the past? how are they working now? how have they worked out?
5. its NEVER 50/50 49/51 your favor AT LEAST or not at all.
6. Do you guys have an exit? is he ok if it cashflows? are you ok if it takes selling it to buy him out?
7. WHAT else does he bring to the table? cash is just that. cash. his green is the same color as everyone else. money is just a commodity. if he cant bring other value to the table. then. uh, no.

valuation of your company.
its a total startup, valuations are out the window. cashflow! awesome. valuations? WTF? it will be what he wants or you are willing to settle for.
if you can get him to agree to take a smaller percent ( 10% -49%) for cash over time. (example: 10k=5%) and get 10K a month, then after a couple months, you many not need to sell more to him, because you may be able to cash flow it with out his money, keeping more %
or
you may find he sucks, and you want to buy him out, his % may be lower and easier to buy out as a result.

well, hope that helps.
if you can do without great.

if you need one. then consider what I mentioned above. it can speed you up super fast sometimes.


Z

 

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[Stu_Hefner]

Zen, im always amazed by the way you think and the insight you give in posts. Thank you.

Being an investor, and having raised money from investor is a 2 edged sword.

sometimes 100% of zero... well, its still zero.

the thing you should be focusing on is getting it up and working, then minimum viable product, then optimize your deal until its 1 dollar in 2 dollars out (or what ever metrics you decide on) THEN you go as for money, you give up the least amt, and every dollar you spend goes right into scaling.

yesterday, I got an investor to agree to give me 500K for a little side project. he got 15%.

every single one of those dollars gets plowed into scaling a business, that we already built. we know our numbers. for every dollar in we get 1.65 out over a 6 month period or a total of 130% ROI. so was it worth it to get 500K for us? well we can roll that 500, 2x a year, and generate an extra 1M plust in profits. so ya, it does speed it up.

additionally, the investor is connected to some other people we would like to be talking to and could use the inside contact.

there are alot of ways to make money. and giving up a little piece is part of what I have come to be ok with, as long as it fits in the long term plan. I like Felix Dennis, BUT he does things differently than I do. Everyone does.

YOU have to figure out if an investor will move you forward in the right direction.

more importantly it has to be the RIGHT investor.

I just turned down a 12M dollar financing yesterday, because it was with the wrong investor. he started to pull some bullshit early, and that's a Big NO NO in my book. if it is like that now, it will only get worse later.

we are not in a hurry by any means, and so we can turn down bad offers. That was a bad offer.

the points to consider when you talk with him

1. does he fully understand your biz NOW, and the plan for the future
2. is he willing to be a PASSIVE investor? hands off, you steer the ship, no questions.
3. does he understand the risks that this might NOT work. if so GOOD. then you do everything you can to make it work.
4. how have some of his other joint ventures, investments, partnerships gone in the past? how are they working now? how have they worked out?
5. its NEVER 50/50 49/51 your favor AT LEAST or not at all.
6. Do you guys have an exit? is he ok if it cashflows? are you ok if it takes selling it to buy him out?
7. WHAT else does he bring to the table? cash is just that. cash. his green is the same color as everyone else. money is just a commodity. if he cant bring other value to the table. then. uh, no.

valuation of your company.
its a total startup, valuations are out the window. cashflow! awesome. valuations? WTF? it will be what he wants or you are willing to settle for.
if you can get him to agree to take a smaller percent ( 10% -49%) for cash over time. (example: 10k=5%) and get 10K a month, then after a couple months, you many not need to sell more to him, because you may be able to cash flow it with out his money, keeping more %
or
you may find he sucks, and you want to buy him out, his % may be lower and easier to buy out as a result.

well, hope that helps.
if you can do without great.

if you need one. then consider what I mentioned above. it can speed you up super fast sometimes.


Z

 

[Big Daddyhoo]

What can he do in the self-help industry to scale the business, that you can't do too?

You say you don't have time to do this yourself. Was there an understanding that he will come work for the company too?

 

[Jake]

To quote the esteemed (self-made billionaire) Felix Dennis:

"Never, never, never hand over a single share of anything you have acquired or created if you can help it. Nothing. Not one share. To no one. No matter what the reason -- unless you genuinely have to. ... Ownership is not the most important thing. It is the only thing that counts." (Excerpt: "How to Get Rich" Page 171)

Download his book (right now). Spend the $9.99. Read that Chapter (Ownership! Ownership! Ownership!). Do it NOW.

Great book..but I don't see how this rule should be followed in all circumstances.

Let's say I have an e-book that I plan on putting on Amazon. By doing this I will probably make somewhere around $100-$300 a month (wild guess). This wouldn't be a bad return on my investment but it would by no means be life changing. I would have 100% control but Amazon would still take a large cut.

I decide I want more, not more control, but more $$'s. This book would probably make a great clickbank product but I'm not familiar with launching products and I don't know any affiliates that would push it.

A light bulb moment happens and I decide to shoot someone who has experience in this field a PM. Hey, (insert name). How would you like to engage in a JV? I have a product, and the startup capital, but I need your expertise, contacts, and guidance to successfully launch this info product. Here's 50%. Let's make some money.

Instead of earning hundreds, the product could now be bringing in 10's of thousands a month. I'd happily hand over some ownership for a massive amount of profits and gain the experience that would go along with it.

 

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[Esquire]

I think there is a big difference between a Joint Venture and a Partnership.

In a joint venture ... I am still in complete control of my business. A partner cannot dissolve it or otherwise interfere with its control. There is a contract assigning rights and responsibilities ... yes ... but it still MY business. I can dissolve the JV (or even breach it) and still remain in business (subject to potential liability, of course). And of course, you can also issue bonds in lieu of a sale of equity (if a cash loan is really what you are after, and you truly believe in your product).

With that said ... whereas I would be comfortable with a joint venture ... or bonds ... or maybe even an assignment of profits (something akin to a limited partnership) ... would I be comfortable with a bona-fide partnership ...?

I'm with Felix Dennis on this one.

It's obviously a matter of debate.

With that said ... I really liked your response, Zen.

 

[Johnny boy]

Give him whatever ownership.

You're a CEO and manager that makes all decisions.

You receive a salary and bonuses for performance and decide shareholder dividends.

He gets a little bonus, his value of shares goes up as the business grows in revenue and scale, you take home bonuses and get your big salary. He's happy, you're happier. But he can kick rocks if he thinks he's getting a big percentage of revenue.

If he doesn't like it, you can push him out, do some financial gymnastics and put assets into a separate business that does the same thing that he doesn't own. Have all control and THEN decide to help other people make money, but never put the power in someone else's hands.