Start-up Valuation

[PhillM]

I've been working on a business plan for some time now and am looking to finally raise some capital. I haven't figured it out completely but I'm going to need around $50K which all of that will need to either come from a business loan or investor. I'm willing to give an investor roughly 40-50% of the company in return for basically paying for the whole operation. Does that seem fair? Should I take out a loan for $25-$35K and then ask for an additional $15K giving them 20% equity? Chances are I won't be able to get a loan and if I do it won't be much more than $10K especially because I'm a full-time student. What do you think is best?

[Benizzle]

what are the financial projections for you'r start up over the next 3 years? shoot me a PM...

[PhillM]

That's part of the problem. There's really no public information on my specific product. There are competitors that do something very similar though. Their numbers are also in the millions and I don't think a start up will be in the millions right from the get go.

[phanio]

It will be very hard to find a professional investor for just $50K - most of those before you that only needed $50K tend to bootstrap that amount - somewhat like you stated - get a little at a time as you need it. Others tend to tap friends and family or get out locally to solicit investment.
There are options of piecing your needs together - from Micro Loans and peer-to-peer loans to non-bank lenders that do not have the onerous requirements of banks.
You can also do what I call "putting the cart before the horse financing", this is where you go get the business first, then use that business in hand to find the financing you need to complete those jobs (works great for those who are in the B2B space). There are accounts receivable factoring and purchase order financing - that has less concern about your credit, revenue or future potential but will fund based on the strength of your accounts receivables or purchase orders. It is essentially leveraging your ability to get business.

[PhillM]

Yea I realized that. Basically my business is a video game kiosk rental business and my plan was to keep the start-up costs as low as possible. Do you think it would be better to ask for an investment of let's say $200K and place 3-4 kiosks instead of starting with just the 1? It's going to be fairly hard for me to get a loan as I'm currently only a part-time worker and a full-time student.

[PhillM]

Or what if I look for a micro-loan on a place like the lending club of $25K to help bring in an investment? Let's say I get a loan for 25K and ask for 100K in investments. They're going to want a large portion of the company aren't they?

[veikoh]

It all depends who the investors are and for what they are investing for. Usually they do not want to get the founder out, so they will be satisfied with 40-49% regardless of amount you are asking. If you fail to deliver your business plan, then they have need to put more money in and then founders are out.
So, it all is about your business plan. In your case, I think putting the first kiosk somewhere with borrowed money and show how much can it generate, then go to investors and ask money to put 100 kiosks sounds more viable than getting an investors for one kiosk.

[PhillM]

It all depends who the investors are and for what they are investing for. Usually they do not want to get the founder out, so they will be satisfied with 40-49% regardless of amount you are asking. If you fail to deliver your business plan, then they have need to put more money in and then founders are out.
So, it all is about your business plan. In your case, I think putting the first kiosk somewhere with borrowed money and show how much can it generate, then go to investors and ask money to put 100 kiosks sounds more viable than getting an investors for one kiosk.

Yea I think I'm going to go that route and also bring in a couple partners, at least 1. I need a person with financial knowledge and strategic planning.