[RobG]

Hey All,

I have just received expressions of interest from 2 separate Angel investors who are willing to part with $1million and come in on the deal that I'm trying to structure.

They are asking to purchase common stock [private placement]. They are asking how many shares I am willing to sell and at what price. They are interested in what % that would be and are asking for anti-dillution provisions along with questions on any attached warrants or rights.

While I've been running my company for 7 years, financing is my "weakest link" and we have never needed financing before so this is brand new to me....I'm currently interviewing "financial intermediaries" to help me out with this but that won't be complete for another 2 weeks....I need to get these guys an answer soon. So basically, financing opportunities have shown
up before I'm really ready.

There's a horde of questions I have but I guess it all stems from the same thing...Valuation. Based on the limited knowledge I have in this space, I know my company is worth between $4.5 and 7.5 million (obviously I like the higher number) but can't pinpoint the exact figure without investing 10K to 15K to find out (which I can't do right now). I own 100% of the shares
(10,000,000 shares) and if I can get away with $7.5 mill as the PRE-money valuation, then $1,000,000 = ~15% of the company so each share is worth approx $0.75...I think. Is my logic flawed here? What am I missing?

Secondly, anti-dilution provisions...I was under the impression that any future rounds, by necessity, dilute the current share value...is this wrong? Will creating an anti-dilution provision hamper future investment rounds?

Thirdly, what are they asking for when they are asking about any attached warrants or rights? Should I be providing anything in this light?

Thanks for any help you can give.

Rob

[myglobalsound]

I'm hoping to get to this point in my business, all i can say is congrats and i wish i had your problem.

[Redbaron]

Originally posted by RobG

Hey All,



They are asking how many shares I am willing to sell and at what price. They are interested in what % that would be and are asking for anti-dillution provisions along with questions on any attached warrants or rights.


Rob

Hi Rob,

You are correct in pursuing iintermediaries, this is not something you want to try to figure out on your own, something most of us try to do all to often. I would buy time. Let them know you are carefully considering the offer as you want to make sure it structured in the best interest of all. That said, would they please provide expectation and/or examples of other deals (thier own or not) that look like what they want. It's a stall tactic, but you may learn some important things from what they come back with.

As for the dilution and warrants (typically related). I think it is fair for them to ask. It is only going to limit you so far as this particular agreement is in effect. Measure the pros and cons. Perhaps you could agree to this if you get a gaurenteed buy back provision. That way they get the protection and return they wanted and you the right to get your shares back and make a new deal.

Just my thoughts.

Bjorn

[jpomerenke]

Originally posted by RobG
Hey All,

I have just received expressions of interest from 2 separate Angel investors who are willing to part with $1million and come in on the deal that I'm trying to structure.

They are asking to purchase common stock [private placement]. They are asking how many shares I am willing to sell and at what price. They are interested in what % that would be and are asking for anti-dillution provisions along with questions on any attached warrants or rights.

While I've been running my company for 7 years, financing is my "weakest link" and we have never needed financing before so this is brand new to me....I'm currently interviewing "financial intermediaries" to help me out with this but that won't be complete for another 2 weeks....I need to get these guys an answer soon. So basically, financing opportunities have shown
up before I'm really ready.

There's a horde of questions I have but I guess it all stems from the same thing...Valuation. Based on the limited knowledge I have in this space, I know my company is worth between $4.5 and 7.5 million (obviously I like the higher number) but can't pinpoint the exact figure without investing 10K to 15K to find out (which I can't do right now). I own 100% of the shares
(10,000,000 shares) and if I can get away with $7.5 mill as the PRE-money valuation, then $1,000,000 = ~15% of the company so each share is worth approx $0.75...I think. Is my logic flawed here? What am I missing?

Secondly, anti-dilution provisions...I was under the impression that any future rounds, by necessity, dilute the current share value...is this wrong? Will creating an anti-dilution provision hamper future investment rounds?

Thirdly, what are they asking for when they are asking about any attached warrants or rights? Should I be providing anything in this light?

Thanks for any help you can give.

Rob

I skimmed over your paragraph fast and first off... when they talk about warrants and rights they arent talking about what you think. They are talking about a form of stock options. Off the top of my head i cant say i exactly rember a great defention for them but from my series 7 studting days i do rember that is has to do with being able to purchase more shares in future at a set price but dont quote me.

I also think anti-dultion just means you cant sell any shares until a certain date or a certain event in a company. Example.... if your company goes to shit.... you cant sell out of it.
Again dont quote me cause its been awhile since ive dealt in the "financial world" but i know that im on the right track.

I also think if you arent a public company you can probably value your stock at the higher end with no problems. Maybe

[jpomerenke]

I forgot to mention that when you hear the words anti-dulition, and warrents that means there is a long term investment in the making. They both have to do with saving investors butts in a long term investment.

If i were you i would hire someone to handle the financial end of your business. Especially if you dont know about this stuff.

[focusben]

Form a financial business team.

[RobG]

Thanks for your thoughts everyone...Appreciate it.

Bensin (first name?), hang in there....as long as you already have your executive summary, a polished Bplan, a presentation and most importantly a realistic use of funds sheet (what EXACTLY you are going to spend their money on), it will come. After that, it's just networking...I've actually had a lot of success with the online Angel Investment Networks...it usually costs to use them ($200 - $1000 each) but it's been worth it for me. Make sure you use every NO you get...ask what their objections are so you can shore up what you're saying and avoid that objection next time.

Bjorn, the one thing I love about being an entrepreneur is everybody wants a piece...it's fun to watch them try to play the game My problem right now is ensuring I can get someone I trust as a fin. intermediary that also has the knowledge and experience to help me down the road when going for round 2....not just a short term player. Good call on the stall tactic...I'll give it a whirl and see what they come back with.

We are a private company. Dilution occurs when more shares are issued to accomodate another round of financing...eg. issue more corporate shares to fulfill more investment (don't just give away more of what you have). This obviously dilutes (decreases) the value of the shares that the first investors bought. Anti-Dilution issues worry me only because I will be going for a more formal round in 12-18 months. If an anti-dilution clause exists, I worry that it may act as a poison pill for traditional VCs...I just don't know. I do like the buy back provision/idea....that works.

It kills me...you figure every entrepreneur who goes out there to get money goes through this...most entrepreneurs are not the financial wiz's in the biz. I'm very surprised that more "walk-through" info or "how-to" info is not available (in-depth support community)...it would save both the entrepreneurial community and the investment community a ton of time and effort...not to mention decrease the wages of the lawyers and accountants This site has been a start but I would love to see a "start-to-finish" example (Bplan creation through to term sheets and final contracts) Are there open resources like this out there? Networks of vetted entrepreneurs to at least bounce stories off and get advice? Haven't found too many formal ones....Obviously this is not a substitute for the help you SHOULD get...hiring a temp-CFO should be high on the list as are lawyers and CAs....they usually just want options for their time.

Thanks for all your help...I'll keep you advised as to my progress....not that I have my hopes up huge on these two but at least it's a start.

Cheers

Rob

[Karen]

RobG,

If the financial side is your weak point, assemble a financial team to deal with it. Just make sure they can work positively together, and will have your best interests in mind.

I am curious, why are you worried about the future shares? Companies have to go through a period of expansion, as is expected. VC's will want to see the expansion in the bplan, and will effectively not want to lose on their initial offerings. However, if you are striving for IPO, it opens a whole new ball park.

Develop your financial team and stategize, develop your game plan, incorporate it into your bplan, and let it fly. If you start adding 'what if's', 'how's' and questions into the equation you will slow the speed.

I like your thoughts about the step by step guide, this would make alot of peoples lives so much easier. There are partial guides, and industry specific guides, but not a general guide for an entrepreneur.

Karen

[RobG]

Karen,

I'm putting the team together now. Many interviews and lunches trying to isolate those whom I deem to be suitable and with whom I will be able to work with on a long term plan basis (and who will put up with me ). Some of them are quite experienced and are honestly not asking too much for the knowledge they have.

I am not concerned about the issuance of additional shares. That would be fantastic and mean I have reached my goals and am in a position to get additional financing in a series B round (despite the fact it is Angel's doing the funding, the company satisfies 90% of the criteria to be classified a series A) My concerns revolves around the anti-dissolution clause that the angels are trying to get me to bite on. I'm unsure as to whether this is a standard clause or if it will harm me with institutional VCs when the time comes for another round.

I tend to be the "push ahead" type all of the time so through this process I thought I'd give my head a bit of a shake and try and get some feedback from those who have gone through it to see if I'm headed (running) in the right direction.

We'll see how it goes through my process...if it's successful, I may genericize my plan and all the steps I've gone through and post it somewhere...might be of use to some.

Cheers

Rob

[Karen]

Can you summarize the 'anti-dissolution clause'?

And are the VC's US based?

Karen

[RobG]

No...VCs are Canadian...one out of Kelowna and one out of Toronto

Anti-dissolution clause basically means that the value of the original investor's shares will never go down in value to to the issuance of new shares through the introduction of a new investor

Through financing, you always only deal one term sheet at a time (one deal at a time) So if I have 1000 shares and I sell 10% for 1 million, that's a deal. I get my mil, you get your 10% equity

I'm not very good at explaining it and I don't have my materials in front of me but In the next round of financing, more shares can be issued by the corporation to accommodate the influx of new money at a higher value than the original round.....so if I grow the company and the company is now worth more because it is doing better, the value of the original shares has obviously increased so new shares are added to counterbalance....ok....I'm getting lost I have this whole story down somewhere at the office...I can try and address tomorrow.

Rob