Resource Recommendations for Startup/Dealing with Investor (1 Viewer)

[The Duff Man]

So I am about ready to take the plunge on a business idea I have had for a while.

A good friend and colleague has an investor he knows personally that is lined up and willing to provide seed money, he wants 6-8% ROI. This colleague (not the investor) would also be my business partner.

Totally new to this process. Any good resources you could recommend would be appreciated. I have been digging already, but looking to narrow down my reading list.

Will be meeting with him next month.

It is a service based business with fairly high up front cost but little ongoing costs and little competition.

Strip club napkin numbers:

$1.5M invested

1st year revenue $350,000 versus $1,000,000 costs (capital equipment)

2nd year revenue $700,000 versus $1,000,000 costs (same)

3rd year revenue $1,000,000 versus $1,000,000 costs (same)

Revenue flattens at about $1.3M for 6 years as I service existing client base with costs declining to about $500,000 on a linear curve.

My salary is included in the cost projections (assuming he goes for this)

I can repay the initial investment in full with 8% ROI in year 8, following which I have about 5 years remaining life in my capital equipment with profits of $1.3M years 9-13.

Of course, a ton more detail (client base, services offered and how I will sign up customers) needs to be shown and validated with him, that I wont divulge here, but would love to get feedback and resource recommendations.

 

[eoMMan]

What happens if revenues don't meet expectations and he can't get 8%?

 

[Bucky86]

Seems like a lousy ROI over 8 years

 

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Seems like a lousy ROI over 8 years

I assumed that was annualized. Otherwise, I agree unless he's getting points as well.

 

[kutta]

Cut your revenue projections in half and double your estimated costs. See if your equations still work.

You are getting into some pretty big numbers right out of the gate. You should see if there is ANY way to do this with less startup capital required.

 

[Bucky86]

Seems like a lousy ROI over 8 years

I assumed that was annualized. Otherwise, I agree unless he's getting points as well.

That's what I was thinking as well. The OP just needs to be aware and use that in his assumptions.

OP. What is the investor getting? Is he getting 100% of revenue until investment +8% and then what split?

 

[Brony]

I actually thought the business idea was strip club napkins the first time I read the OP.

 

[The Duff Man]

Thanks for the comments.

It is annualized ROI, 8% per year.

The costs are linked closely to the sales, if the sales are there I need the equipment, if no sales then costs will scale down accordingly.

I will scale targets down, that is great advice.

An analogy for the business would be, using a new technology and adapting it so that a car could run with no oil changes for 15 years. I will put the tech in your car, and you pay me what you would pay for oil changes for 8 years. After that, the tech is yours.

My current employer makes the tech, but has no interest in this model (either installing the tech or funding the work). They have dabbled in this market for three years and sold some tech to "car owners" that have the capital funds so I have lots of validation and referrals.

But most companies do not have capital set aside for this, it is new and off the radar. I will be dealing with a relatively small number of customers. It could be as low as one, I know at least 20 companies that I have already talked to that have the "cars" but no capital. Signing just one of these companies would hit my year one sales target.

 

[The Duff Man]

OP. What is the investor getting? Is he getting 100% of revenue until investment +8% and then what split?

I will negotiate this when we meet next month. I am trying to research (resource recommendations?) what I should shoot for given the revenue and cost projections.