Investor pitch

Fair investor percentages

Kellie Anaya Owner of Kiss Me Honey Lip Balm

August 13th, 2018

I have investors interested in my small company. My company doesn’t show any cash flow, so basically they like the product and idea. What is a fair percentage to give them and make sure I don’t get diluted one day. I would be ceo of company still

Richard Beck Founder-SoftwareOutsourcingSolution.com

Last updated on August 16th, 2018

As an Entrepreneur with an Accounting background, I look at the bottom line...


Let's look at the numbers...


You put in...

$50000 in work

$100000 in your product IP



They put in....

$150000 for you to use at your discretion


I"d be looking for 51 percent at least.... Remember, you are working without compensation "running the company." If they want you to do that, it is easily worth 1 percent.


I would also include a clause that gives you a minimum royalty if you are ousted from the company....


Another thing to consider... Once you put your products in the company and they own a majority share, they could fold the company and walk away with your products. That could turn into a sticky situation.


I'd also discuss a dilution clause with your Attorney.


I am not trying to discourage you... I just want to let you know what could happen.




Ok Bye .

August 13th, 2018

why would you give 49 percent of your company, its not charity , you should not give more than

30 percent

David M

August 14th, 2018

There is so much advice of why not to give up 49% in your position. But a few things to consider. You may have to take on capital at some point in the future, which is very likely if you grow to a larger company. You may have to take on a board of advisors..consider 1-3% each. You may need a great COO or CFO at someone point who will need equity. Guess what...your 51% NOW BECOMES 48 % AND YOU NO LONGER HAVE CONTROLLING INTEREST. The shares have to come from somewhere. Further more, while yes some investors are going to look at your valuation at present and give a very textbook and myopic valuation, there is more to consider. There is also an element of you knowing your future worth, and what that is. There are also other ways to compensate. For example you can work out a deal of ROI that could be upwards of 20%-25% for the investor in combination with some form of stock ownership. I admire you for being open to be generous. Too many entrepreneurs are delusional when they they think they will give someone 1-5% of their company for investing or helping to build it. They look extremely amateurish for doing so. And most, usually end up keeping 100% of nothing. At the same time, giving up 49% of your company when you already clearly have a product base, product and production line up....all because someone is going to invest $150k?? I would be creative at this point. Look for mutual alliances with brand and established channels. Balance your capacity to scale with sharing the profit for such a growth strategy. This way you scale up as you build your revenue and you avoid giving up half your company which could be worth a considerable amount one day.

David M

August 14th, 2018

Why would you give up 49%? I will connect to you in private. But you want an anti-dulution clause not a dilution clause, unless you want to be diluted. Have mercy! "Anonymous" glad you are waiting for my answer. Feel free to connect to me.

Richard Beck Founder-SoftwareOutsourcingSolution.com

Last updated on August 16th, 2018

Kellie,


Based on your description, you have products... But, not a company at this point.


I'd exclusively license the products for a percentage of gross revenue with a monthly minimum.


You still control the products and can change licensees. Nothing is etched in stone forever.


You can focus on creating more products while they handle everything else.


All the Best,

Rich







Remi Mičiulis Building a strong team, looking for technical co-founders https://www.remi-net.uk/legal/r-team/

August 13th, 2018

It depends on how much is done, how far you went in developing your business.


If you have a strong co-founding team, you may offer (e.g.) 2% per every £50k investment. If investors will not accept it, you may offer 3% per every £50k or so.


Do not offer too much, start on lower figures ;)

Anonymous

August 13th, 2018

waiting for David M's reply

Kellie Anaya Owner of Kiss Me Honey Lip Balm

August 13th, 2018

Yes correct, I have a product.This is great idea, except they want me to run the company still, with many product packaging modification, website changes etc. which that is there expetise not mine. they Are putting up initial money and I would be putting up $50k but In work hours. The ball is on my court, I just want to make sure one day I’m not pushed out. What percentage would be fair to give them? Also I can add a dilution clause?!

Kellie Anaya Owner of Kiss Me Honey Lip Balm

Last updated on August 13th, 2018

Rick, I appreciate all your insight, I have no clue About this and want to be smart at my decsion. So, I keep 51% give them 49% with a dilution clause?Also a royalty in contract...

Kellie Anaya Owner of Kiss Me Honey Lip Balm

August 13th, 2018

Rick, I was also thinking with these percentages I could set the dilution clause at 10% this way, they couldn’t dilute me anymore unless I agreed on a by out?