Need investment advice

[eworthy]

Need some investment advice. My business partner and I own a data center here in the US. He came on in early 2008 and last year was our best year. Although we haven't paid ourselves a salary, we managed to gross 340k and net around 50k before depreciation. In the meantime, we've added infrastructure and a wireless network with 6 POPs where we offer point to point business Internet.

The future is pretty bright as we can offer many products such as Internet access via fiber or wireless, backup and VOIP over that connection (partnering with other companies) and general data center services such as colocation, dedicated servers and a new VMWare setup.

My question is I haven't really gone out to seek investment yet and we have a customer that is begging to invest. He is basing our net worth based on our revenue. So, his projection is our company is worth $340k and wants to give us 60k for 20% of the company.

So, I'll quickly point out the positive and negative of our company and hopefully some of you can tell me if I should look around. 60k will go very fast so I don't know if it's worth it.

Positives:
1. 2 owners, 1 ex owner with no equity with a note for 90k payable starting 2011. (starting at 1200 per month or so)
2. Data center with fiber and licensed microwave backup.
3. Brand new power backup system. (UPS, generator, ATS switch)
4. Microwave network feeding 8 POPs with over 70Mbps of bandwidth
6. Positive cash flow by 9k every month. (No salary paid yet..)
7. Ready to grow

Negatives:
1. Data center on 100 acres in horse property. Most people love it but some people prefer concrete, in town data centers
2. Have struggled to grow with no marketing or sales activities, just word of mouth.
3. Need about 200k to upgrade wireless equipment, market and hire some sales folks

I know I can't explain the entire business in this short post but hopefully this gives you enough information to help.

Thanks,
Eric

[noob]

A few things to note.

1] You never ever have an amateur that don't know how to evaluate your business' actual value to raise investment money. Raising too much or too lower and create a false valuation for your company and therefore do more damage than good if you plan on raising capital down the road to expand your business. That said, $60k for 20% of the company base on last year's revenue is a joke valuation. There is a lot that goes into determining a company's valuation and you can't just determine this yourself. That said, he must be an accredited investor to even invest and you should double check to see if that is even the case.

2] Regarding the ex-owner who supposedly have no equity and a note to pay him $90k. Do you guys have legal signed documents drafted by an attorney known as a termination agreement that illustrate he agrees there is no ownership rights and that he is being compensated the $90k? It is important to make sure this is squared away correctly or there could be a potential lawsuit down the road.

3] If you want to raise money, I would look towards real investors who know what they're doing. Your buddy doesn't seem to know the proper approach to investing and even though you say you need $200,000 to upgrade hardware, I would suggest you try to grow the business clientele more first. The longer you can wait to hold out, the better your terms will be in raising capital (assuming the business is growing) and also in terms of hardware pricing (best bang for your buck).