[a764]

I am in the midst of launching my own hair care products, and have drafted an investment agreement for potential investors. Upon reading the draft, kindly advise if this agreement is remotely interesting to 'would be' investors in my business venture. Any suggestions in making it more financially appropriate would be highly appreciated.

The draft:

Zodiac concept:
Being private, Zodiac doesn’t get much media attention, and of course, we can do without it! Yet there is another side to this story. The little-discussed heart of the matter:

Zodiac’s private equity fund will raise money from investors with the aim of investing for the long term in the potentially high-growth sector of the hair care industry, by being a key contender in the industry. We will be manufacturing and marketing our products through our existing network of distributors nationally and overseas.

How our private equity funding works:
Investors in the Zodiac’s private equity fund will be termed as ‘Limited Partners’. The investors have a limited liability; hence, the risk will always be minimal to the amount invested. Each investor will participate in a fixed annual fee of US$ 1000.00 to cover the business operating cost.

All investment funds will have a fixed return of 15 percent on their investment (ROE). Upon receiving the original investment back, Zodiac will retain 20 percent of the net earnings hence after. Therefore, if the original investment by the limited partner was five thousand dollars, and Zodiac made that into twenty thousand over the life of the investment, Zodiac will retain three thousand dollars - 20 percent of the fifteen thousand dollar gain, to be applied towards expansion of the core business.

The return of equity is based on the accounting valuation similar to return of investment (ROI). Because the numerator (Net Income) is an unreliable corporate performance measurement, the outcome of the formula for (ROE) must also be unreliable to determine success or corporate value.

Formula: Return on equity calculation;
(Net Income / Book Value of Shareholders' Equity = ROE)

Apart from this, (ROE) is sensitive to leverage: assuming that proceeds from debt financing can be invested at a return greater than the borrowing rate; (ROE) will increase with greater amounts of leverage.

[akula]

Originally Posted by a764

Upon reading the draft, kindly advise if this agreement is remotely interesting to 'would be' investors in my business venture. Any suggestions in making it more financially appropriate would be highly appreciated.

Zodiac’s private equity fund will raise money from investors with the aim of investing for the long term in the potentially high-growth sector of the hair care industry, by being a key contender in the industry. We will be manufacturing and marketing our products through our existing network of distributors nationally and overseas.

nice...that would be a big "no"
I've had a bit of experience with managing a private equity fund, and the number of problems with what you're saying is overwhelming - to say it in the best way possible

in terms of suggestions, it's way too early to make any real recommendations. even the vocabulary you're using is incorrect...not to mention your calculations etc. look...there's plenty of links to a whole bunch of people in my blogroll who've done the stuff that you wanna do, so you're best to drop them a line...but I wouldn't say or show them anything other than asking "What's best practice for raising a venture fund?"..at this stage, any information you disclose to a venture professional will work against you (as it'll make you look...well...you get the point)

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Cool. What are you asking? Because this isn't an agreement.

[jasaunders]

You need to get legal assistance from a lawyer with exprience in securities laws.

[a764]

akula: Thank you for your post. I will explore your 'blogroll' to further educate myself.
"even the vocabulary you're using is incorrect...not to mention your calculations..." Can you please explain to me whats wrong with my calculations.

jmenq2: Thank you for reminding me that it's not an agreement. It is a financial investment proposal draft. Any other suggestions apart from it not being an agreement?

jasaunders: An attorney with securities experience? Is generating funds from private investors for a private business related to SEC?

Appreciate all the replies, and would like to gain more insight from all the valued members here.

Regards,
Adnan

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Let's start from the beginning:

You are proposing that this private equity fund will be in the form of a limited partnership? Is that correct? If so, why have you chosen this business entity?

[a764]

As an investor, the risk factor/liability is the minimal being a limited partner of the business entity, hence if for any god forsaken reason, we fail, the partners only risk losing their investment, not anything else legally connected to them. It is the best way to secure the investors well being.

As I have mentioned, i am looking for idea's and suggestions to make this rough draft more feasible. I am no expert in this issues...but i sure would like to see this succeed with all the advise i can avail.

Thank you once again for you patience and interest.

[jasaunders]

Originally Posted by a764

jasaunders: An attorney with securities experience? Is generating funds from private investors for a private business related to SEC?

Yes, raising money from private investors for a private business can have implications to the SEC. I am not well-versed on securities laws, so I cannot give advice or tell you what these implications may be, other than there are implications. (ie. raising money from nonaccredited investors)

[Cole Taylor]

I really don't know where to start...First, as has been mentioned, nothing about what you wrote could be construed as an agreement. It seems as though it's part of a poorly written executive summary.

- You do not, nor do you plan on having, a private equity fund. Stop confusing the issue. i.e,

"Zodiac’s private equity fund will raise money from investors with the aim of investing for the long term in the potentially high-growth sector of the hair care industry, by being a key contender in the industry. We will be manufacturing and marketing our products through our existing network of distributors nationally and overseas. "

Are you looking to generate funds to invest in other companies or are you looking for investors to make an investment in your company?

Do you really have a network of distributors?

As was suggested please check with a securities attorney.

[a764]

Originally Posted by Cole Taylor

I really don't know where to start...First, as has been mentioned, nothing about what you wrote could be construed as an agreement. It seems as though it's part of a poorly written executive summary.

(Can you suggest how i can improve this poorly written executive summary, It would surely help a lot!)


- You do not, nor do you plan on having, a private equity fund. Stop confusing the issue. i.e,

"Zodiac’s private equity fund will raise money from investors with the aim of investing for the long term in the potentially high-growth sector of the hair care industry, by being a key contender in the industry. We will be manufacturing and marketing our products through our existing network of distributors nationally and overseas. "

(Zodiac is the business that is looking for funds from investors to start the manufacturing of the product. Sorry to have confused you, but it's quite simple, when it states that it is looking for equity from investors to start production/distribution.)

Are you looking to generate funds to invest in other companies or are you looking for investors to make an investment in your company?

(Explained above.)

Do you really have a network of distributors?

(I have been in this industry for 11 years, working as the marketing director for a manufacturing company and have an established network, with a buying potential of over a million dollars monthly.)

As was suggested please check with a securities attorney.

(So if my grandpa and couple of his friends were to invest $10,000 each in this business, does the SEC get involved? SEC has no relevance in obtaining funds from private investors.)

Thanks for your input!

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Originally Posted by a764

(So if my grandpa and couple of his friends were to invest $10,000 each in this business, does the SEC get involved? SEC has no relevance in obtaining funds from private investors.)

Thanks for your input!