A business deal with no capital from your side

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Stolyarov Daniel
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Is it a reasonable deal to put on the table with an angel investor, where the 100% of the start up costs (£60,000) will be covered by the investor and you will be holding 20% of the equity (while you being the only active participant of the business who is in charge of establishing it and growing it). Further, with the condition that after reaching the valuation of £1,000,000 for the company and the investor achieving the 100% Return on the investment, I will have a non-negotiable right to buy-out 60% of the equity back from the investor(the reason being the control over the company), putting him into the passive investor position. Preferably, with further 5% of non-negotiable buy-out after achieving the next valuation target on the company?
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username1799249
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I doubt it. Why would anyone give you £60,000 to lose? You would only get something like that if you had something tangible like a statement of intent to place an order, some sort of intellectual property or a history of creating multimillion pound start ups. Have you not watched Dragons Den? I suggest you do.

But it does happen. Richard Branson famously sells his Virgin Brand for equity in start up businesses, the other party stumping up all the hard cash and stomaching all the loss when the business (like so many Virgin Businesses) goes bust. (see Virgin Cola, Virgin Trains, Virgin Cinema's, Virgin Brides, various takes on Virgin Airways)
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Stolyarov Daniel
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(Original post by ByEeek)
I doubt it. Why would anyone give you £60,000 to lose? You would only get something like that if you had something tangible like a statement of intent to place an order, some sort of intellectual property or a history of creating multimillion pound start ups. Have you not watched Dragons Den? I suggest you do.

But it does happen. Richard Branson famously sells his Virgin Brand for equity in start up businesses, the other party stumping up all the hard cash and stomaching all the loss when the business (like so many Virgin Businesses) goes bust. (see Virgin Cola, Virgin Trains, Virgin Cinema's, Virgin Brides, various takes on Virgin Airways)
I have specifically mentioned an "angel investor". Having an introduction meeting, explaining and proving opportunities would surely give a significant probability for the investor pulling the trigger.

As the confidence has been built and knowing that his expertise and experience within the industry makes him believe in the project, with the 80% of equity to start with, I believe he would not hesitate realising the concept.

The contract is more about "I have the project worth investing and there is a high likelihood of success proven by the market research, lets realise it and successful operation will be ensured, all I ask is 20% as a way to accumulate capital which is going to be spent on the acquisition of the equity to gain control of the steering wheel as I have proven to you that I can push the pedal and enhance the business further since the idea is mine and only my perception on which path the business should take has resulted in the success of the business so far to this date. You will then sit on the saloon with 20%, allowing you to focus on other projects"

The project is within the emerging country where the flexiblity of capital transaction is higher since the unsaturated markets and higher rate of economic growth.

And dont you think that "£60,000 to lose" is a risk averse mentality which is the opposite mentality of investors, since they are there to take on the risks? Again, with the 80% to start with, risks of losing all the money has drastically decreased given the fact that he also believes that the idea is unique and has a lot of potential?
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username1799249
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(Original post by Stolyarov Daniel)
I have specifically mentioned an "angel investor". Having an introduction meeting, explaining and proving opportunities would surely give a significant probability for the investor pulling the trigger.

As the confidence has been built and knowing that his expertise and experience within the industry makes him believe in the project, with the 80% of equity to start with, I believe he would not hesitate realising the concept.

The contract is more about "I have the project worth investing and there is a high likelihood of success proven by the market research, lets realise it and successful operation will be ensured, all I ask is 20% as a way to accumulate capital which is going to be spent on the acquisition of the equity to gain control of the steering wheel as I have proven to you that I can push the pedal and enhance the business further since the idea is mine and only my perception on which path the business should take has resulted in the success of the business so far to this date. You will then sit on the saloon with 20%, allowing you to focus on other projects"

The project is within the emerging country where the flexiblity of capital transaction is higher since the unsaturated markets and higher rate of economic growth.

And dont you think that "£60,000 to lose" is a risk averse mentality which is the opposite mentality of investors, since they are there to take on the risks? Again, with the 80% to start with, risks of losing all the money has drastically decreased given the fact that he also believes that the idea is unique and has a lot of potential?
So a few things here.

Firstly, investors do take risks but they are not reckless. They take higher risks than most people but then most people invest in savings accounts paying 0.5% so it is relative.

Why would you give away 80% equity leaving you the minority shareholder? You would have no say in your own business and if it did really well could easily be ousted.

Why would any investor sign up to a deal that saw them bought off at the point where exciting things are starting to happen. Based on you idea you would owe the investor £800,000 to buy them out but if the company achieved that kind of success surely sticking with it would be the wise move?

Finally, market research prooves nothing as countless failed businesses and products have proved. An investor wants a proven idea at best or to spread the financial risk with you at worse. If you were investing your own cash that would be a statement of intent from you.
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Stolyarov Daniel
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(Original post by ByEeek)
So a few things here.

Firstly, investors do take risks but they are not reckless. They take higher risks than most people but then most people invest in savings accounts paying 0.5% so it is relative.

Why would you give away 80% equity leaving you the minority shareholder? You would have no say in your own business and if it did really well could easily be ousted.

Why would any investor sign up to a deal that saw them bought off at the point where exciting things are starting to happen. Based on you idea you would owe the investor £800,000 to buy them out but if the company achieved that kind of success surely sticking with it would be the wise move?

Finally, market research prooves nothing as countless failed businesses and products have proved. An investor wants a proven idea at best or to spread the financial risk with you at worse. If you were investing your own cash that would be a statement of intent from you.
And what would be a reasonable % of the start up cost to cover from your side to achieve majority shareholding. Considering the fact that I am the one who is proposing the idea.
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username1799249
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(Original post by Stolyarov Daniel)
And what would be a reasonable % of the start up cost to cover from your side to achieve majority shareholding. Considering the fact that I am the one who is proposing the idea.
50% of the money for 50% equity. Right now your idea is worth bobbins. It is only once you start to make money or prove potential to make money that your bargaining power would increase. But even at 50/50 it is still a very risky proposal.

What are you planning to spend your 60k on?
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ch0c0h01ic
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If you have such an amazing idea, it is that easy monetise and it is going to be that profitable, why aren't you doing it?

The fact that you haven't would suggest that there are issues with implementation and monetisation, and you aren't dedicated enough to commit (or risk) your own money. Both of these are massive red flags to any investor.

You also don't have a business to speak of, no customers, no assets and no turnover. You're actually in a very weak negotiating position, because you're not asking someone to invest in your business, you're asking them to gamble on an idea of yours.

If someone asked me to commit 100% of capital I would argue that it is in fact MY business and you would be lucky if you took away any equity.

Given that 90+% of small businesses fail, if you want to be successful you need to approach an investor with more than simply an idea.
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alan55
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(Original post by ch0c0h01ic)
Given that 90+% of small businesses fail, if you want to be successful you need to approach an investor with more than simply an idea.
That is so true. Starting a profitable business is not so easy. When I started my own business I found EspoCRM to manage all my contacts. It's free system and I'm totally satisfied with its work.
Last edited by alan55; 1 year ago
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