Start-up business offer
- Thread starter catlanta33
- Start date
Here's the reply to some of the questions.
1.How much are you guys investing into this to start?
Total investment will depend on which options you elect. It looks to be around a $200k investment.
2.How much of that investment would be from loan(s)?
$100k will be out of pocket. (I.E. Your salary, office space, office equipment and some initial product and marketing.)
$100k Line of Credit will be in place for additional product costs.
3.What are you valuing the company at?
The company valuation was done at 1.5M.
4.What did you base the 0.15 stock price from?
The $0.15 stock price was derived from 1.5 Million valuation divided by the total 10 million shares of company stock.
5.What's the exit strategy?
Exit strategy is long term. We are creating a business that has the life cycle of retirement for all shareholders and employees. I believe there should always be a buyout number that is well known between shareholders, but shouldn’t be achieved before a life cycle minimum of 5-7 years.
6.How is the company divided up in terms of percentage?
This again depends on the option you decide. The rest of the shares would be held in the name of Their Current Company, which is comprised 50 – 50 of only Rick and I. (I.E. If you decide 20% as your option then Current Company would hold 80%)
7.Are you seeing me as a founder or first employee?
In terms of “founder” I would say Rick and I have created the ideals and foundation of this “company”. That would in turn make you “first employee” with equity. That being said you would be a CEO / COO of sorts with your Title becoming stronger as/if the company grows. The first 6 months to a year Rick, you and I will be fairly intertwined as we strive to get this business off the ground. We will all share “founder”, “CEO”, “COO” roles. I think for the two of us we view this as a partnership between the three of us more than who gets what title.
1.How much are you guys investing into this to start?
Total investment will depend on which options you elect. It looks to be around a $200k investment.
2.How much of that investment would be from loan(s)?
$100k will be out of pocket. (I.E. Your salary, office space, office equipment and some initial product and marketing.)
$100k Line of Credit will be in place for additional product costs.
3.What are you valuing the company at?
The company valuation was done at 1.5M.
4.What did you base the 0.15 stock price from?
The $0.15 stock price was derived from 1.5 Million valuation divided by the total 10 million shares of company stock.
5.What's the exit strategy?
Exit strategy is long term. We are creating a business that has the life cycle of retirement for all shareholders and employees. I believe there should always be a buyout number that is well known between shareholders, but shouldn’t be achieved before a life cycle minimum of 5-7 years.
6.How is the company divided up in terms of percentage?
This again depends on the option you decide. The rest of the shares would be held in the name of Their Current Company, which is comprised 50 – 50 of only Rick and I. (I.E. If you decide 20% as your option then Current Company would hold 80%)
7.Are you seeing me as a founder or first employee?
In terms of “founder” I would say Rick and I have created the ideals and foundation of this “company”. That would in turn make you “first employee” with equity. That being said you would be a CEO / COO of sorts with your Title becoming stronger as/if the company grows. The first 6 months to a year Rick, you and I will be fairly intertwined as we strive to get this business off the ground. We will all share “founder”, “CEO”, “COO” roles. I think for the two of us we view this as a partnership between the three of us more than who gets what title.
I would get everything in writing and let a lawyer take a look at it. In particular I would get the stuff in #7 above detailed and in writing.
Paraphrasing here but... "We all share founder, CEO, COO roles and we "view" this as a partnership but don't want to define titles"…all of that sounds like red flags to me. Especially since it sounds like you will be doing all of the actual work initially. Get it all defined and in detail…and get it in writing. Then let a lawyer take a look at it.
Forgot to add. This should be obvious…but don't use their lawyer or any lawyer they have used for any business venture or private matters in the past. Use a separate lawyer…one you trust.
Paraphrasing here but... "We all share founder, CEO, COO roles and we "view" this as a partnership but don't want to define titles"…all of that sounds like red flags to me. Especially since it sounds like you will be doing all of the actual work initially. Get it all defined and in detail…and get it in writing. Then let a lawyer take a look at it.
Forgot to add. This should be obvious…but don't use their lawyer or any lawyer they have used for any business venture or private matters in the past. Use a separate lawyer…one you trust.
D2 is going to drop a knowledge bomb on my head.
Kaizer, I almost can't help being as cynical and skeptical as I am. Now that we're flirting with this and it's gaining traction, I intend to cover my *** as much as humanly possible. I've told them already I'm not going to take anyone's word on something this big to me and them. But the advice I'm getting here is really helping me understand better where I'm exposed and hopefully, how to tailor a counter that benefits everyone and someone isn't bitter in a year from now because it wasn't asked or addressed in writing.
Kaizer, I almost can't help being as cynical and skeptical as I am. Now that we're flirting with this and it's gaining traction, I intend to cover my *** as much as humanly possible. I've told them already I'm not going to take anyone's word on something this big to me and them. But the advice I'm getting here is really helping me understand better where I'm exposed and hopefully, how to tailor a counter that benefits everyone and someone isn't bitter in a year from now because it wasn't asked or addressed in writing.
While a 3 man team is going to be wearing many hats I do think titles with job descriptions are very important. That puts specific responsibility on each person so if someone is pulling more weight or slacking it's measurable. That's what worries me about the setup. You get in this and all responsibility gets dumped on you at 20%. If they are going to be loosely involved, what does that specifically mean? That's how these relationships sour. One guy gets lazy and the other guy picks up his slack and gets dumped on.
You all need to write a detailed business plan. I am assuming the bank will require this. You need to be granted access to financials. And again you need to make sure you have a contract with a buy sell in place, reviewed by your own attorney. These are all things I do with even my family.
Hope it works out man. Exciting stuff.
You all need to write a detailed business plan. I am assuming the bank will require this. You need to be granted access to financials. And again you need to make sure you have a contract with a buy sell in place, reviewed by your own attorney. These are all things I do with even my family.
Hope it works out man. Exciting stuff.
Why not a joint venture set up as a partnership if no one is looking for an exit in the near term? They can get their losses or distributions to the extent of initial capital. You can take a small guaranteed payment for the time being. You guys can share in the profits in and agreed upon percentage assuming the company becomes profitable once they get their capital back. (Obviously there are some other nuances).
I'm sure other's can add as well, but there are lots of issues with the information they are providing you. I'll just address the item from the response you got:
1. Investment into the idea based on your salary grade is the most ridiculous thing i have ever heard. They are trying to use their existing company to make an investment in the one you will be starting. By saying they will take on financing based on how much salary you elect to take is not a good signal. Investment is determined by corporate goals and milestones, not by an employee's salary. VC's think, "If I give these guys $2M, can they grow our interests by a 2x - 10x multiple in next three years?"
2. The only truth here is that $100k financing as a seed is all they are willing to do. Typically this buys you an 8% - 18% stake in a startup. Just something to keep in mind. They are asking for 80% for $100k. Their company will be indemnified for the $100k loan if it defaults, so I am sure there is some additional risk they have to take. In either case, they aren't committed enough for the level of ownership.
3. Valuations aren't what you think a company should be worth. They are what an auditor thinks your company is worth. Ask for their 409A valuation. This is an official document that you have to pay an auditor for. If they don't have it, or their legal counsel refuses to share, you already know that they aren't worth working with.
4. On the stock price on valuation. I'd rather discuss with you off this thread. Huge implications and giant red flags in what they told you.
5. Their exit strategy makes no sense. What happens when they don't make revenue to stay afloat? What's the fundraising plan? What are the actual exit opportunities and ROI? Institutional investors and VC's can afford roll the dice on investments and hold out for 5x - 10x multiple, because they have multiple companies they bet on at once. For you guys, 2x might be what makes you call it a day. You need to have a firm idea on what makes sense and make sure all parties are aligned on this.
6. With what I have read, the only deal I would take is the following--and this is already at a discount for them: NewCo if formed, you keep 80%, they get 20% (they can split however they like) for 100k investment.
7. With the risk you are taking, you better be Founder, CEO, President. Make sure you are the only voting board member. This last bit is critical.
Or tell them thanks but no thanks your boy D2at will help you with startup and they can be your clients!
3 people and the one doing all the work is only getting 20% is on the most basic level someone capitalizing on your efforts. If it's a 3 man team take no less than 33%.
Their up front cash can't be worth breaking yourself for, didn't they approach you? Isn't your current situation a good one? You need more incentive honestly.
Proud of the paddock today!
3 people and the one doing all the work is only getting 20% is on the most basic level someone capitalizing on your efforts. If it's a 3 man team take no less than 33%.
Their up front cash can't be worth breaking yourself for, didn't they approach you? Isn't your current situation a good one? You need more incentive honestly.
Proud of the paddock today!
I just talked to D2. There are those that think they're the smartest guy in the room and there are those that are the smartest guy in the room. He's the latter.
Simply put, they're either ignorant or malicious. Being that one is a long time friend and someone I deal with almost daily, I think it's ignorance. I've got some more research to do and we'll see how much they have done and if this ever goes forward from there.
Thank you to everyone for the advice. No lie, you guys prevented me from getting caught up in the moment and making what could be the worst decision of my life.
Simply put, they're either ignorant or malicious. Being that one is a long time friend and someone I deal with almost daily, I think it's ignorance. I've got some more research to do and we'll see how much they have done and if this ever goes forward from there.
Thank you to everyone for the advice. No lie, you guys prevented me from getting caught up in the moment and making what could be the worst decision of my life.
Man, we want you to suceed Catlanta.
Plus, you get rich and you could help finance my new business idea called Deathbed Orgasms. An end of life decision that allows the person to go out with a bang. Literally.
Plus, you get rich and you could help finance my new business idea called Deathbed Orgasms. An end of life decision that allows the person to go out with a bang. Literally.
I ad a great idea too, given the liberal turn of the country. A chain of lesbian whorehouses called "Slits and Clits". Dine in or, for those with a sun roof....a drive through
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I don't think offering them 20% of the company for $100k is quite right, but it's closer to fair than what they are proposing. At a $1.5m valuation, they are saying your 1.5+ years of work is worth $150k while their intellectual and work contribution is worth a combined $1.25m. Unless they have some serious IP or some crazy good idea you can't replicate, that's doesn't seem fair. And the $100k capitalization doesn't sound like enough either. Gonna have to pay someone a pretty penny just to build the website and software you are going to use.
Sounds like the dudes are having success in what they're doing but maybe not the most organized business people. Nothing wrong with that, happens all over the place. Hopefully you can have an honest convo about realistic options and what you expect.
Yeah they're mixing one business strategy that worked for a 50/50 split and they're winging this one. One thing that sticks out is it being their idea. This isn't the next Facebook, Google or another multi-billion dollar can't miss idea. It's breaking into an existing market that has some established players that we can take market share from. I think they're vastly underestimating what a good e-commerce website will cost. Also have to have something other than Quickbooks to manage purchasing, inventory, usage and more.
Not that I'm one of a kind but my experience is about as close to a match to what they need. That won't be free labor from me or anyone like me. I think they need to take a plan to some VCs or other startup pros and hear some truth if we don't get anywhere.
Not that I'm one of a kind but my experience is about as close to a match to what they need. That won't be free labor from me or anyone like me. I think they need to take a plan to some VCs or other startup pros and hear some truth if we don't get anywhere.
Had another convo with one of the guys. He's still stuck on the investment and if the company were to fail, he's got to repay the loan and I can walk away.
Also thinks their investment is all risk but my leaving a job and putting in majority sweat equity isn't. He said if the equity split was even 33% that no one would make salary. Yet I mentioned they still have a source of income where I wouldn't.
I'm still going to sit down but this seems irreconcilable.
Also thinks their investment is all risk but my leaving a job and putting in majority sweat equity isn't. He said if the equity split was even 33% that no one would make salary. Yet I mentioned they still have a source of income where I wouldn't.
I'm still going to sit down but this seems irreconcilable.
You're taking a bigger risk. If you're an owner I would think at least some of the financial risk would fall on you. You're quitting a job, they are not. You're getting paid scraps, which is common in a startup, but they're not. You're providing the labor and revenue. I'd want something more organized at least if I was taking that leap.
This is the biggest issue I have. It's a new start-up. Anytime that's the case there is going to be risk. He is risking the loan money and you're risking your current pay for your family. Let's say, hypothetically you're earning $50K-$60K now. You're technically risking anywhere from $75K-$90K in money if it fails in 18 months.
Willy you are bang on the money, we just to structure your deal so that it minimizes the risk for all. From an investor's perspective (e.g. an angel investor), you never invest more than 0.5% of your net worth on a single endeavor. Catlanta, with this in mind, you should be raising money from someone who is is worth at least $20M. This is not as hard as you think. If you need help with intros, we can definitely talk more.
It's done. Talked to both gents and they aren't backing off that it's their idea, they've already started working on it and they're ponying up all the risk. As it stands, I'll still make good money off of them if they're successful because they'll sell a lot of my product. On the other hand, I hope they're not over-extending themselves and lose two companies from one failed startup.
Many thanks for the advice. D2, I'm just not cutout to do this on my own but I appreciate the offer and I hope we stay in touch because something else is bound to come up that makes more sense for me and what I want to be a part of.
In the meantime, one of you build a 2,000 unit multi-family complex in central or north Florida and I'll hook you up on some electronic locks.
Many thanks for the advice. D2, I'm just not cutout to do this on my own but I appreciate the offer and I hope we stay in touch because something else is bound to come up that makes more sense for me and what I want to be a part of.
In the meantime, one of you build a 2,000 unit multi-family complex in central or north Florida and I'll hook you up on some electronic locks.
Why those areas? You live around central florida? If you do, dammit Catlanta don't be holdin' out the blow on me man.
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I was in Orlando today, Willie. When my hair isn't on fire, lets grab a beer.
Unfortunately I can't sell to hospitality but multi-housing is all me. So the distributor needs to be in my territory if I want any commission but the project could be anywhere.
Unfortunately I can't sell to hospitality but multi-housing is all me. So the distributor needs to be in my territory if I want any commission but the project could be anywhere.
Consider it done. Let me know the next time you're in town. Got many good watering holes for a brew. I do like Dewey's virtual golf over in Dr. Phillips.
Also have a few connectionsto some people in Ocala where I was a ****** realtor. I still talk to some of those people from time to time and they have access to builders up there. And as far as I know, they are always building house in Marion County.
I'm not going to lie, Willy and Catlanta is like power rangers combining.
Goosebumps
Goosebumps
I'm usually in Orlando FL at least 2x yearly these days. Perhaps we can all hook up, lame cyclists included. [banana]
@d2atTech and @Dennis Reynolds: Gentlemen, thank you for the education. I've been involved so far in 2 start-ups on the back-end here in ATX and am seriously impressed with your knowledge.
Yeah those dudes are smart. Waaay smart. I remember when D2 made a post about developing an app. I really want to start an app tracking 17 yr old girls birthdays till they turn 18. Telling you now that it would be a money maker
I might have to move to Austin, so be good keep in touch on startups if you are game do another one!
willy, i want beer you when you come to cali next. would be an honor to throw back a few cold ones with you
The most intriguing part of this thread is WTF Mr Cal Tech is doing on this site. Something doesn't add up here. I'm gonna figure it out D2. You're going down!
posted it before in this thread, but was born a wildcat, lived in lexington till five. moved the wild west after that (for the gold!)
very likely indeed. the story for why we left lexington was a bit more complicated. Before IBM became Lexmark, they used to give out grad fellowships (35k/year--in the late 80's, which was a hell of a lot of money back then--and full tuition for three years). dad used it to get a phd from georgia tech. we finished up in atlanta and came back to lexington. dad said "f*** that ****" to lexmark. it was pretty unfortunate, i think he really liked ibm research.