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Lawrence260 · 08-23-2006, 03:46 PM

I am starting up a company that I need only 100K to start. I found a investor in UK that his investment company is setting up the details. Well I got an offer today for them to own 22% of the net yearly for 5 years with a buyback of the current value. Does this mean I pay them the 100K at the end of the 5 years to buy there 22% back so I can have full equity ownership again? They would stand to make approx 90K a year for 5 years (450K) then the buy back. This is got me concerned but I could use the money, but dont want to make a bad decision and get screwed and locked for 5 years. How would they know what my net is? Is there any legal recourse if they dont like the returns they are getting?

4-Knots · 08-23-2006, 04:34 PM

I think you need to discuss it with the investors more in depth. Terms of investment should be made crystal clear, its not the sort of thing you want to have a dodgy understanding of.

MsNadi · 08-23-2006, 05:05 PM

Basic Finance - you'd have to pay him the present value of $100K with whatever interest interest you agree on. Think of like a mortgage.

Principal: $100K
Interest Rate: __ % (compounded annually)

And you'll get your buy-back rate.

I'd recommend doing some research on about.com on basic finance (or even seeing if you can find a college professor's course notes online). If not, you might want to find a financial accountant, and pay the $200 for ONE HOUR of his/her time. It's worth it.

Because guaranteed should you move forward with this agreement (which is a great one) - there'd be some finance/legal jargon that you simply wouldn't understand.

$100K for 22% - your company has an estimated valuation of ~ $455,000? Very COOL!

Caliny222 · 08-23-2006, 05:05 PM

what? "got an offer today for them to own 22% of the net yearly for 5 years with ..." Net yearly what??

MsNadi · 08-23-2006, 05:09 PM

Question for you: how'd you go about attracting the investor? Personal network? Personal Contact - someone put you in contact with a contact of their own? Traditional investory relationship methods - shopping your idea around?

Inquiring minds are curious.

Lawrence260 · 08-23-2006, 05:27 PM

Ok..that explains it. I thought that the buy back would be his intial investment of 100K after 5 years. The equity would be secured in a share certificate of 100K.

I offered a private loan with a 70% simple interest but they proposed the equity investment that blew my mind and no way will I jump into this deal with them for 5 YEARS!

Quote:

Originally Posted by MsNadi

Basic Finance - you'd have to pay him the present value of $100K with whatever interest interest you agree on. Think of like a mortgage.

Principal: $100K
Interest Rate: __ % (compounded annually)

And you'll get your buy-back rate.

I'd recommend doing some research on about.com on basic finance (or even seeing if you can find a college professor's course notes online). If not, you might want to find a financial accountant, and pay the $200 for ONE HOUR of his/her time. It's worth it.

Because guaranteed should you move forward with this agreement (which is a great one) - there'd be some finance/legal jargon that you simply wouldn't understand.

$100K for 22% - your company has an estimated valuation of ~ $455,000? Very COOL!

Lawrence260 · 08-23-2006, 05:29 PM

22% of the net profit. Which on avg would make him 75K-100K a year. So in essence this could make him closed to 500K and then a buyback of 500K.

Do I have the word "idiot" written on my forehead?

I am just curious where to find some sample of more rational deals that are similar.

Quote:

Originally Posted by Caliny222

what? "got an offer today for them to own 22% of the net yearly for 5 years with ..." Net yearly what??

Lawrence260 · 08-23-2006, 05:30 PM

This is an investor that answered my add on Go Big Network from the UK, who put me in contact with his investment compant that invest money for him.

Quote:

Originally Posted by MsNadi

Question for you: how'd you go about attracting the investor? Personal network? Personal Contact - someone put you in contact with a contact of their own? Traditional investory relationship methods - shopping your idea around?

Inquiring minds are curious.

Lawrence260 · 08-23-2006, 05:33 PM

My thing is, sure I can do this then make sure the net is low. I.E pay myself a nice salary, pay a consulting firm, pay a VP, or whatever and show a low NET. My plans were to show a ZERO net each month anyway, but than this would change things.

noname · 08-23-2006, 05:35 PM

Quote:

Originally Posted by MsNadi

Question for you: how'd you go about attracting the investor? Personal network? Personal Contact - someone put you in contact with a contact of their own? Traditional investory relationship methods - shopping your idea around?

Inquiring minds are curious.

You shouldn't answer some1's question with one of your own. It makes it harder to read the thread and means the thread-starter may not get the answer to his/her qustion. If you want to ask him something then PM him.

MsNadi · 08-23-2006, 07:27 PM

70% interest - you'd have to CRAZY to do that for five years. After five years, it'd cost you to close to $480,000 to buy back your 22% - which is fine if you're company becomes a $5MM company in five years.

But then I'm speaking purely from the numbers side. I'm not well versed in venture capital - maybe 70% is a realistic figure...I dunno. :shrug: