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Money, Business & Finance Ground >> ATTN investors- what returns do you expect on inv?


5/23/12 5:45 PM
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HERTSWENIP
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Edited: 05/23/12 5:46 PM
Member Since: 1/1/01
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I am on the verge of launching a business, and I have an investor willing to forward 60k in cash (he was wiling to put forth 100k, but I want to minimize his investment), to launch a product I spent years developing.

I have spent 30k of my own cash over the years, along with hundreds of hours of work doing the R&D.

This product has the potential to make millions, or it could only generate a measly 50k annual revenue.

My question is:

How much equity would you expect out of an investment like this?

I would like to retain the option to buy out my part of the company when I have the capital- what would be a reasonable proposal to an investor?

The reason is, if this product doesnt sell as well as planned, ie generating 50-60k a year, its not worth having a partner. Not only that, but having dual owner ship simply complicates matters.

I'm the mastermind behind the operation, and I'd be running the whole show- Id like to buy out my share. Ideally, I want to get in, make my money, and get out, and start a new project, or simply retire.

Do you have any suggestions or advice? I'm going to be having a follow up meeting with my investor monday to discuss his options, and Id like to be well prepared.
5/23/12 5:55 PM
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HERTSWENIP
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Also, what kind of buyout option would you be satisfied with? Ie, if I paid you back 150% return on your investment (ie you give me 60k, I give you 90k within a year and the company is all mine) would that be reasonable?
5/29/12 4:02 PM
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Severnsmustache
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 What could be fair is 50% ownership of the company until all of his equity plus a +-10% return on his money is paid back. Then dilute his ownership in the company on a sliding scale until he is at a % that works for both of you and rewards the risk he took with his cash.
Maybe 40% ownership for year 1 after his payback
30% year 2 after payback
25% from then on.
5/29/12 4:16 PM
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Severnsmustache
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 Thats what could be "fair"

If I was the investor and I was passive in the company,  I'd be more aggressive and ask for a permanent ownership  close to 50%.... but that's me.
5/29/12 11:57 PM
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HERTSWENIP
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Edited: 05/30/12 12:00 AM
Member Since: 1/1/01
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Thanks mustache, very helpful post!

Question: If I wanted to put a clause in our agreement, that states I retain the right to buy out his share of the company within the first 3 years after launch, what do you think is an acceptable amount? Ie 150% ROI?

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