Absent Investor Percentage ???

[doc1976]

Hello everyone, here's my situation. I am fixing to open up a small business in the hair industry. Both my wife and I are Hair stylist, and have decided to open our own shop. However, we have gotten a few clients . and family members that would like to become the investors. They see the potential and I can understand them. Nevertheless, I am not certain on how to arrange this situation as far as the percentage goes. My investor has proposed to me the loan for 100,000 , and 50/50 on the profits. Does this sound like a reasonable offer ? I tend to feel its to much for them since they will not be doing any work. What is the norm. % for blind investors? The loan will most likely get paid off in 3 years, should the % change after that period of time?
Please any information would be greatly appreciated...

[akula]

ppl, what is the point of this thread?
the problem you are solving is "how do I allocate equity?"
there is a professional way to do it, and then there is what you guys are doing
the probabilities of you changing how you manage your cap tables is zero, therefore there is no point in giving you any feedback

what I would like to say though is that I feel bad for your situation. early stage companies deserve appropriate early stage financiers. you guys, on the other hand are dealing with people who are inappropriate for the role of business angels. an appropriate person would have set you down and hammered out a premoney valuation prior to any kind of financing transaction. when angels fail to set premoney valuations it means they don't care about their exit multiples, which means that they've got no idea what they're doing.

without an agreed upon premoney valuation, it's assumed that the financier is ripping you off - because there is no way to tell if they're not.

[BusinessAdviser]

So you really want to pay back the investor's money, with interest, AND give the investor 50% of your business basically?! Hell, do you have some more businesses for ME to invest in with you?! I'll take you to the cleaners too!

[akula]

What is the norm. % for blind investors?

that's not the correct term
investors can either be passive or active
active investors also take executive/board roles, passive investors do not

that said, even though your investor does not have an exec or board position, it doesn't mean they won't meddle with the company. depending on the type of securities they're holding, this shareholder may have the voting power to change and alter the direction of the company - including the termination of executive employees such as your self

so make sure that your "blind investor" holds non voting securities - such as convertible notes