Entrepreneur seeking a creditor ready to place 50k at 42% APR

[exponentialgrowth]

London-based male (32) still on that hamster wheel going round and round while astute executives and shareholders extract value all the way to the bank.

Salvation presents itself in the form of excellent software development skills in-hand coupled with a business opportunity of considerable potential now identified and committed to.

Endeavour to date involves juggling the day job and associated distractions with activities into the earliest hours in furtherance of the established goals.

In order to precipitate progress and move quickly to exploit a window of opportunity, I am looking at creative ways of concentrating my attention and resources on the project; positioning myself on it full-time.

To this end, for the attention of anyone in a position to so entertain, I present the following proposal for a package of £50,000 unsecured personal debt financing structured to return a reasonable rate of interest to the creditor while accommodating the flexibility of an initial 12 month repayment holiday.

By securing this package I promote the best possible circumstances for the project going forward, permitting the main product and process development capability to focus 110% on delivery.

While unconventional, I insist that this is a serious proposal. I aim to secure flexible capital that plays a critical role in establishing a credible business going forward. I intend to achieve the same under the best possible terms for myself, the project and any creditor in a position to ink this deal.

Following are the suggested terms of the proposal.

==============================================
PACKAGED PROPOSAL FOR UNSECURED PERSONAL DEBT FINANCING
==============================================

Headline consideration: £50,000

Ensuing repayment term: 2 years

Annual rate of interest: 42.42% APR

Annualised rate of return: 25% [16.67% effectively with scp.1]

Total monthly payment: £3,125.10

Total cost of debt: £25,002.34

Total repatriated funds: £75,002.34

Special contracted provisions:

scp.1 ~ 12 month initial repayment holiday

scp.2 ~ Option prior to commencement of the repayment period only to restructure

outstanding debt into equity as part of any initial funding round taking place

during this time in the project making majority use of the headline facility.

Contribution to assurance:

~ Documentation from the Land Registry, Barclays Bank PLC and Santander verifying

title to two UK properties with combined six-figure equity and the ability to

restructure myself out of this arrangement in the worst possible scenario.

Application and purpose of funds:

~ Full-time Development Of My Proposed Product and Process

* Finalising configuration of off-the-shelf hardware [underway]

* Allocating preferred hardware suppliers and negotiating rates [pending]

* Implementation and testing of proprietary software stack [underway]

* Completion of branding, positioning and identity materials [pending]

* Completion of consumer facing materials including documentation and website [underway]

* Negotiation of pre-order contract and terms with initial go-to-market customer [pending]

~ Basic Business Administration and Expenses

* Registration of corporate limited liability entity [pending]

* Acquisition of essential legal instruments including key-person agreements, MOU, NDA [pending]

* Completion of business and marketing plans [underway]

~ Basic Living Expenses
--------------------------------------------------------------------------------------------------------------------------------------------

And there it is.

If I could walk into a high street bank and secure a package like this yesterday I would have already done so, presented the appropriate notice at my day job and be 110% engrossed in developing and delivering my project.

As it is, I present this proposal for serious consideration in the knowledge that someone out there is either in a position to or knows somebody who has the ability to enter into a binding agreement with me today on these terms and at this rate of return on capital.

Your time and consideration is appreciated.


Michael

[exponentialgrowth]

Questions and answers from another forum >

@ReaperGroup

Thank you very much for your time and response. I appreciate your perspective and would like to reply as follows.

How certain are you that your idea is going to work?
When the IPod was brought to the market many other companies were already selling MP3 players. Not withstanding Apple's brand recognition and deep pockets, the company succeeded because they were able to produce a superior unit and then combine this with an innovative business model (ITunes) providing addition and re-occuring revenues.

When the ITeddy was brought to the market, MP3 players were being sold, teddy bears were being sold. ITeddy's founder combined the two and produced an accompanying website offering desirable content for re-occurring revenues. ITeddy also succeeded by presenting the product to a large retailer that committed to stocking it.

In my own case, I've identified an area no one is watching right now that I believe will respond well to innovation. Nothing involving MP3 players mind but I do aim to present a piece of consumer hardware to the market together with the associated software and website in a manner no company in the space is doing today. I plan to go-to-market in partnership with a large retailer who can commit upfront for short-term exclusivity.

My confidence that the idea will work stems from:

the fact that the product is high-margin and unit-based
I'm making use of commodity components that are brought together in a custom configuration and so offering the opportunity to drive down manufacturing costs - impacting margin. Barriers to entry include the proprietary software running in the unit plus the distributed content model of the website and associated subscription option.

my ability to reduce the manufacturing risk
I'm knowledgeable and comfortable with putting software on chips, customising operating systems, programming graphics and touch screen controllers as well as programming websites. I'm able to work with hardware partners and resolve all the specification and integration issues myself.

the fact that the addressable market is large, savvy and willing to spend
The product will appeal to its addressable market in multiple territories and lends itself to direct selling and/or distribution by exclusive partners that commit to orders up front. The website is an integral part of the offering but not the entire offering. I am delivering a physical product and not engaged in trying to ramp up user registrations supported by banner-advertising.
By working with specific partners to introduce the product into the market, the brand is able to benefit from associating with the partner's brand.

Will the £50,000 go to you, or into a ltd company with the investor holding a stake?
The proposal above is structured as a *personal* loan - debt as opposed to equity; discretionary spending implied. The project is complex in nature but its success depends more on my time than my ability to raise capital. I'm doing 18 hour days easily along with my day-job which is time best spent on this venture. A *flexible* loan improves the situation. I have no problem acquiring £50,000 from a high-street bank or in home equity draw-down, the creditors however will never entertain a 12 month repayment holiday (the very component that allows me comfortably exit the day job and concentrate my attention and resources).

Should an investor really be expected to pay you to develop a product, in exchange for just a repayment on the money?
Not an investor - a creditor. 16% annualised return with 150% of capital repatriated within 3 years is not bad economics. I am confident I will raise debt and/or equity capital down the line as the offering nears completion. If an investor wants to discuss a deal involving equity at this early stage, I'm willing to discuss terms. I lean however towards presenting potential investors with something that is close to market-ready.

you could just have one big spending spree and declare yourself bankrupt, putting an investor out of pocket by £50,000 with nothing to show for it.
I appreciate legal documentation doesn't render a deal 100% risk-free, yet the characterisation you present here applies to huge businesses that receive millions in venture capital. Case in point boo.com blew $135,000,000 in 18 months with nothing to show for it - it made no difference investors possessed pieces of paper reading x% preferred stock.

I have no intention of going bankrupt and certainly no intention of misusing critical funds at my disposal. Long before I go bankrupt, creditors are free to seek the intervention of a judge pursuant to liquidating my assets or indeed garnishing my wages.

So is that 6 figures, £100,000 or £900,000? Are they both mortgaged to the full?
The difference between the outstanding mortgages and the zoopla.com value estimate today amounts to £185,000. And sure, I could draw down the £50,000 on monday morning but the money isn't needed if I'm working. I have an issue with the time everything wil take. The project is not a simple one by any means and it involves a lot of front-loaded development work. Fortunately, I'm able to tackle all aspects of it without having to bring in external talent. Having £50,000 in the bank on monday won't speed up development of the product if I'm not working on it.

Just my input from an investors viewpoint. Unsecured i wouldnt go anywhere near it.
I appreciate your input. I know I am trying to structure a package that is at best unconventional but some people out there are very astute and might well be able to introduce other terms or indeed counter in order to bring about a workable deal. My main problem right now is not the money, it's negotiating myself away from the day-job and into this project without incurring additional expenses while still being able to cover the expenses I already have.

As per the current plan, I will continue the project to completion and make it a success. My post was made following a moment of creative thinking after some frustration and it remains here for others to reply to and advice on.

The line "My main problem right now is not the money" has got me wondering if it would theoretically be possible for you to introduce a second person, not as an investor/creditor, but to help the project move along whilst you are busy.
I've spoken to two developers in the past. Both happy to assist but one wanted to draw a salary of £45,000 up front while another requested 25% equity. Reasonable requests in my opinion given their talents and the contribution involved. Given my own technical ability it might prove better for the business in the long run developing the product myself and negotiating initial orders with a go-to-market retail partner on the back of the polished prototype. I've been advised to continue on this course and to raise equity for growth once I'm able to present confirmation of committment from a credible partner - in essence my existing plan.

Good systems developers are extremely valuable and should actually be building their own businesses and where not drawing commensurate compensation helping others to do the same. A good developer (who would not actually end up being my CTO) can expect to resolve deliberations over equity in the 2% - 5% range. I'm open to the idea of a contracted one-off bonus payment as well.

[exponentialgrowth]

Questions and answers from another forum >

@sovietsky

Is there a business plan I can see?
If this request is made in your capacity as a credible equity investor please elaborate on your credentials highlighting typical investment criteria, relationship model and any potential value add i may attribute to your participation. As alluded to previously, I'm keen to see equity involvement taking place at a much later stage. A debt-to-equity arrangement incorporating project appraisal and valuation at such time in the future that both parties agree to attempt a deal would lend itself to this.

If you represent a high-street bank or other regulated entity, kindly furnish more information and details indicating a convenient time to meet.

When do you expect to have this project finished?
I'm currently ahead of schedule and fully expect to have all issues resolved and the product boxed and ready to ship within 6 months.

@BrandAvenue

Have you already approached the banks?
I'm on great terms generally with my bankers. However irrespective of their eternal willingness to help me, the idea of issuing unsecured personal debt combined with the 12 month repayment deferral I am looking for remains highly offensive to them.

How about having one of your potential partners fund product development?
Excellent suggestion and in reality this is a strategy I have already decided to pursue. As I will be likely offering a period of exclusivity, there is enough scope for an appropriate partner that really likes the product to place an order before the product is ready to ship. I'm currently working on the units and material I will present to executives at prospective partners.

[exponentialgrowth]

Questions and answers from another forum >

05/12/2010 09:53 PM | Luked123

Contact me on xxxxxxxYxxxx.xxx as i am willing to invest the money.


16/12/2010 23:47 PM | exponentialgrowth

I'm overwhelmingly pleased to announce that on Thursday 9th December 2010, I was able to sign-off on a deal delivering on all aspects of the original proposal I introduced above.

My creditor, a successful serial entrepreneur in the insurance space, was found on a well known social network for business professionals.

The deal was done following my creditor successfully negotiating an option to capitalise her principle and interest at any time prior to commencement of the repayment period for a fixed and pre-determined 12.5%.

Given the 12 months repayment holiday granted (allowing me to seriously press-on) and the elimination (my view) / capitalisation (her view) of the interest balance, I'm living with the 12.5%.

So with a bout of creative thinking and some thoughtful presentation, in what is less than two months, I have now been able to put a serious amount of extra wind in my sails.

Notwithstanding the ridiculous amount of work there is still is to do, I'm close to disembarking this rusty and rotten hamster wheel.

@Luked123

It's a matter of peculiar fate or fortune that you acknowledged my post during the one week I was away; just ahead also of the week I was sitting down to close a deal. I'm truly grateful for your offer and interest and wish you the very best in your pursuits.

@ReaperGroup

I really appreciate your attention here and particularly the questions you posed. These encouraged me to think things through a little bit more which came in handy. All the best there.


Michael