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Business Advice Needed (1 Viewer)

Dr. Gobbler

Footballguy
I have a tech company that I've been bootstrapping for the past two years. Well, I'm finally at "the finish line", four months til I hit the market. All I have to do is pay for it. So I've met with a few investment groups, they love it, they see it. All of the groups have offered me around the same deal:

Enough money to get to market and give up a medium chunk of the company but I probably won't be able to draw a salary right away..

Or

More money, draw a salary, give up 50% of the company.

What's the play here FFA?

Chet, help!!??!!

 
Since you started it - you know what it's worth (or not worth)better than anyone.

Make that assessment and the rest is just math.

 
It probably comes down to your revenue stream / projection. How long until you are generating significant revenues? For the business to be considered viable there has to be some compensation for the work you are doing. If you aren't doing it your paying for someone to do it.

 
'Dr. Gobbler said:
I have a tech company that I've been bootstrapping for the past two years. Well, I'm finally at "the finish line", four months til I hit the market. All I have to do is pay for it. So I've met with a few investment groups, they love it, they see it. All of the groups have offered me around the same deal:Enough money to get to market and give up a medium chunk of the company but I probably won't be able to draw a salary right away..Or More money, draw a salary, give up 50% of the company. What's the play here FFA? Chet, help!!??!!
Give us the parameters. All of them.
 
Need more info. Typically, giving up control this early is a really really bad idea. But need more info.

 
'Dr. Gobbler said:
I have a tech company that I've been bootstrapping for the past two years. Well, I'm finally at "the finish line", four months til I hit the market. All I have to do is pay for it. So I've met with a few investment groups, they love it, they see it. All of the groups have offered me around the same deal:Enough money to get to market and give up a medium chunk of the company but I probably won't be able to draw a salary right away..Or More money, draw a salary, give up 50% of the company. What's the play here FFA? Chet, help!!??!!
Giving up 50% or more of the company and drawing a salary immediately makes you an employee and not an owner.
 
With the limited information that we have:

What is your personal cash situation like? How long can you maintain your life style without drawing a salary? I am assuming you are not sitting on a huge pot of cash if you are looking for investors.

How long will it take the company to become profitable? Do you plan on taking distributions instead of salary? Will you need to make a proportionate distribution to your new partners? When do you project that the company will be adequately capitalized so that you can start taking profits from cash flow? This is a very important point because I see companies all the time take every dime out of the business then when something goes wrong they fold. This is a huge no no.

Without knowing much about the business some other general questions: How many employees? If revenue ramps up are you going to need additional head count? Remember that you generally have to hire prior to realizing the income boost and non owners don’t work for free. Are you going to have any CAPEX needs coming up this year/next year/next five years. Remember for new companies cash is king!

I would be interested to hear more about what type of business this is.

 
With the limited information that we have:

What is your personal cash situation like? How long can you maintain your life style without drawing a salary? I could probably last a year doing this full time without taking on any other work I am assuming you are not sitting on a huge pot of cash if you are looking for investors.

How long will it take the company to become profitable? I don't know but we're projecting one year Do you plan on taking distributions instead of salary? In a perfect world we would like to take a small salary against future distributions Will you need to make a proportionate distribution to your new partners? When the company is healthy enough for a distribution, yes When do you project that the company will be adequately capitalized so that you can start taking profits from cash flow? 2-3 years? This is a very important point because I see companies all the time take every dime out of the business then when something goes wrong they fold. This is a huge no no.We agree on that, everyone understands what the goal is and that is to build it and probably sell it or go public

Without knowing much about the business some other general questions: How many employees? None, there are four of us who have been doing all of the work.If revenue ramps up are you going to need additional head count? Probably a few but the way things are structured most labor will be contracted, (ramp up/ramp down)lean and mean. Remember that you generally have to hire prior to realizing the income boost and non owners don’t work for free. Are you going to have any CAPEX needs coming up this year/next year/next five years.Depends on our success, but not this year Remember for new companies cash is king!

I would be interested to hear more about what type of business this is. Here is what I'll say on a message board: It's a game changer, it will revolutionize a business segment and it will be an ongoing thing where we will become a patent machine, yes we've done the homework in that regard, yes we have a well known patent attorney working for free in exchange for a small percent. The argument/opinion that we have heard is it's still a risk and since we've made no money up to this point even though the work is done and everyone that has seen it has said "It's Amazing!" everyone is "vulturing" us. Seriously, for less than a million we can be to market and have a suitcase full of patents that any company in this industry will pay over a billion dollars to control, there are plenty of precedents and examples that back this claim. We don't know a lot of VC, Angel or Investment Groups so our pool of contacts is not so deep but I have to think there is a better deal out there but it's technology, we have to move. So the two "deals" that have been proposed to us are pretty similar, 3-450 thousand for 20% or 1.25MM for 50%. 3-450 will get us to market and maybe a handful of patents 1.25 gets us to market and a suitcase of patents and we can all draw a 50-60k salary.
 
Based on your response I think a big factor is how having that big influx of cash effects the value of the company.

As you said moving fast is extremely important in the tech world. Being able to move fast could have a significant impact on the value of your company. That may make the 50% deal more lucrative for you. It comes down to projecting revenues and profits. The better you can do that the easier it is to compare the options.

I'm in the LA area as well. I've been a part of a number of start-ups. Feel free to send me a PM and ask me anything.

 
No offense, but if you are in LA building game changing technology for a billion dollar market then you should be able to find funding at much better terms with ease.

And if you don't know where to start try and find someone who knows how to raise money. Give them 10% to go get you 1mm/10. ( You give up 20% and get a million dollars)

Have you tried raising money? How many meetings have you taken? How many pitches? Have you applied to any incubator programs? Joined Angelslist?

Seriously- if your product is ready for market and the market is as big as you say it should be easy to get funding.

 
I have a tech company that I've been bootstrapping for the past two years. Well, I'm finally at "the finish line", four months til I hit the market. All I have to do is pay for it. So I've met with a few investment groups, they love it, they see it. All of the groups have offered me around the same deal:Enough money to get to market and give up a medium chunk of the company but I probably won't be able to draw a salary right away..OrMore money, draw a salary, give up 50% of the company.What's the play here FFA?Chet, help!!??!!
Make 20,000 $80 bets. Win half and raise $800,000 to bring this company to the market. Skip out on the 10,000 bets you lose.

 
I have a tech company that I've been bootstrapping for the past two years. Well, I'm finally at "the finish line", four months til I hit the market. All I have to do is pay for it. So I've met with a few investment groups, they love it, they see it. All of the groups have offered me around the same deal: Enough money to get to market and give up a medium chunk of the company but I probably won't be able to draw a salary right away.. Or More money, draw a salary, give up 50% of the company. What's the play here FFA? Chet, help!!??!!
:coffee:

 
Since you started it - you know what it's worth (or not worth)better than anyone.Make that assessment and the rest is just math.
This is completely untrue. A founder is probably the worst person to value a company. The value of a company is what the market says it is, not what a founder thinks it is.
 
Is this an S-corp? One thing about salary is you have to pay payroll taxes in addition to regular income tax. That is a 15.6 % hit. So you may not want to take all of your money out as salary.

 
With the limited information that we have:

What is your personal cash situation like? How long can you maintain your life style without drawing a salary? I could probably last a year doing this full time without taking on any other work I am assuming you are not sitting on a huge pot of cash if you are looking for investors.

How long will it take the company to become profitable? I don't know but we're projecting one year Do you plan on taking distributions instead of salary? In a perfect world we would like to take a small salary against future distributions Will you need to make a proportionate distribution to your new partners? When the company is healthy enough for a distribution, yes When do you project that the company will be adequately capitalized so that you can start taking profits from cash flow? 2-3 years? This is a very important point because I see companies all the time take every dime out of the business then when something goes wrong they fold. This is a huge no no.We agree on that, everyone understands what the goal is and that is to build it and probably sell it or go public

Without knowing much about the business some other general questions: How many employees? None, there are four of us who have been doing all of the work.If revenue ramps up are you going to need additional head count? Probably a few but the way things are structured most labor will be contracted, (ramp up/ramp down)lean and mean. Remember that you generally have to hire prior to realizing the income boost and non owners dont work for free. Are you going to have any CAPEX needs coming up this year/next year/next five years.Depends on our success, but not this year Remember for new companies cash is king!

I would be interested to hear more about what type of business this is. Here is what I'll say on a message board: It's a game changer, it will revolutionize a business segment and it will be an ongoing thing where we will become a patent machine, yes we've done the homework in that regard, yes we have a well known patent attorney working for free in exchange for a small percent. The argument/opinion that we have heard is it's still a risk and since we've made no money up to this point even though the work is done and everyone that has seen it has said "It's Amazing!" everyone is "vulturing" us. Seriously, for less than a million we can be to market and have a suitcase full of patents that any company in this industry will pay over a billion dollars to control, there are plenty of precedents and examples that back this claim. We don't know a lot of VC, Angel or Investment Groups so our pool of contacts is not so deep but I have to think there is a better deal out there but it's technology, we have to move. So the two "deals" that have been proposed to us are pretty similar, 3-450 thousand for 20% or 1.25MM for 50%. 3-450 will get us to market and maybe a handful of patents 1.25 gets us to market and a suitcase of patents and we can all draw a 50-60k salary.
Yeah, I'm curious to hear how this turned out.
 
With the limited information that we have:

What is your personal cash situation like? How long can you maintain your life style without drawing a salary? I could probably last a year doing this full time without taking on any other work I am assuming you are not sitting on a huge pot of cash if you are looking for investors.

How long will it take the company to become profitable? I don't know but we're projecting one year Do you plan on taking distributions instead of salary? In a perfect world we would like to take a small salary against future distributions Will you need to make a proportionate distribution to your new partners? When the company is healthy enough for a distribution, yes When do you project that the company will be adequately capitalized so that you can start taking profits from cash flow? 2-3 years? This is a very important point because I see companies all the time take every dime out of the business then when something goes wrong they fold. This is a huge no no.We agree on that, everyone understands what the goal is and that is to build it and probably sell it or go public

Without knowing much about the business some other general questions: How many employees? None, there are four of us who have been doing all of the work.If revenue ramps up are you going to need additional head count? Probably a few but the way things are structured most labor will be contracted, (ramp up/ramp down)lean and mean. Remember that you generally have to hire prior to realizing the income boost and non owners dont work for free. Are you going to have any CAPEX needs coming up this year/next year/next five years.Depends on our success, but not this year Remember for new companies cash is king!

I would be interested to hear more about what type of business this is. Here is what I'll say on a message board: It's a game changer, it will revolutionize a business segment and it will be an ongoing thing where we will become a patent machine, yes we've done the homework in that regard, yes we have a well known patent attorney working for free in exchange for a small percent. The argument/opinion that we have heard is it's still a risk and since we've made no money up to this point even though the work is done and everyone that has seen it has said "It's Amazing!" everyone is "vulturing" us. Seriously, for less than a million we can be to market and have a suitcase full of patents that any company in this industry will pay over a billion dollars to control, there are plenty of precedents and examples that back this claim. We don't know a lot of VC, Angel or Investment Groups so our pool of contacts is not so deep but I have to think there is a better deal out there but it's technology, we have to move. So the two "deals" that have been proposed to us are pretty similar, 3-450 thousand for 20% or 1.25MM for 50%. 3-450 will get us to market and maybe a handful of patents 1.25 gets us to market and a suitcase of patents and we can all draw a 50-60k salary.
Yeah, I'm curious to hear how this turned out.
If he can't afford to pay Tim $80 (or whatever), we know the answer.

 

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