Business Analysis · Finding cofounders

What price of your company do you give out when you seek for business partner and investor

Ryan Hoang Founder, Activewear, Clothing company

October 2nd, 2019

Hi. I am planning to have someone come in as a business partner/ investor for a retail e-commerce sports apparel startup. The founder, myself, started this 2 years ago. It has grown significantly in Vietnam and still continuing to grow and has stablke revenue streams in Vietnam and i am looking to launch the US business. That's when I want to have someone come in to build this out and possibly build more operations overseas in other countries too. I am thinking to value the business without the Vietnamese operations using formula: my opportunity cost of developing the brand for 2 years + cost associated with getting the supplier + cost associated with design + LLC formation cost in the US + US trademark cost + my free capital to invest in US business. Is this reasonable? How do I go about on doing this

Anuj B. Gopal Seasoned Entrepreneur who grew a bootstrapped AIoT startup to clock $15M revenue. Seeking co-founder

Last updated on October 3rd, 2019

Hi Ryan,

Happy to hear that you have stabilized the operations & revenue within 2 years of business launch and now you're focusing on growth opportunities at a wider scale.


To do that you're on-boarding a partner who will help you to scale business operations at US and also make investment to bear operational cost for initial days. You also don't want to include your existing operations/revenue from current Vietnam's entity, that's mean this partnership would be valid for US operations only? You will be the sole owner of Vietnam based firm?


If that's the case, I hope you have already carried out, the market research for US sports consumers, present competitors, estimated cost of customer acquisition, cost of service delivery as per US regulation and mediators, technology, operations, maintenance & financial transactions cost in US etc.

  • have you evaluated your partner ability to bring the estimated business. You can do this by creating quarterly or monthly milestones for example 'x'% of new order within 'y' time-frame of venture launch etc.
  • create an estimations of resource and capital required to achieve that 'x%' within 'y' time interval. Don't calculate this figure for more than a year or two. It will give you time to change your strategy or onboard new partners without an opportunity cost in US market.
  • now you've got the required numbers to decide the equity divide.

For better understanding, I've classified your formula as following:

  • Founder's opportunity cost of developing the brand for 2 years : business legacy expenses
  • Cost associated with getting the supplier + cost associated with design : product delivery expenses
  • LLC formation cost in the US + US trademark cost : business incorporation expenses
  • Capital investment by founder for US business : founder capital investment or f
  • Capital investment by new US business partner : partner capital investment or p

here,
f + p = total cost to acquire 'R' revenue within 'T' time-frame

  1. If both partner and founder have agreed to put equal efforts in achieving the business goal(R) than equity should be distributed equally, where new venture would be liable to pay 'business legacy expenses' to founder separately (from the profit earn through US business).
  2. Otherwise, you can explore various ways like following:
    • Crate an estimated cash-flow (with business plan) for 'T' time frame (1 or 2 years) to acquire revenue 'R'. Now define the equity distribution on the bases of value proposition (RoI) for both founder and partner. Here add 'business legacy expenses' as founder's investment.
    • Founder may keep all legal business right with their Vietnam venture and incorporate new US company as its corporate branch or distribution subsidiary. Create a partnership agreement to run operations together for 'T' time period to sell 'z' units of products. Now distributed the equity on the bases of required cash-flow and estimated value proposition (RoI). Here, founder will own the legal business rights hence he can't claims his 'business legacy expenses' although he can declare a fraction(<20%) of it as capital investment.
    • Use 'Slicing the pie' mechanism (based on mutual trust, considered for bootstrapped or early stage startup founder/partners equity split).

Their is no standard ways for equity split, most of VC prefer Cash-flow estimation method whereas other methods used by early stage ventures. The choice is yours.


Regards,

Anuj

Paul Garcia marketing exec & business advisor

October 3rd, 2019

I agree with @Clay, your costs and the effort you put into developing the brand mean very little to the investor. Sure you have traction in your home country, but expanding to another country is in fact, a completely new business with all the risks that you had at the start the first time. You cannot draw parallels between the VN market and the US market. The only advantage is that you have figured out your means of production. That's it.


Your investor or foreign sales partner is going to look at what you have done to reduce their risk. What have you done to test the US market? Have you personally visited the US to establish relationships into which the US-based partner can step-in and take over? What does the competitive space in the US tell you about your likely addressable audience and obtainable market?


The more unanswered questions, the higher the risk, and the lower the value.

Mr. Kelly Johnson Looking for Co-founder

October 3rd, 2019

Kind of funny that Xiao Xiao also posted in this board asking the same thing on her side. I'm betting she is your "Someone" ;-)

Ryan Hoang Founder, Activewear, Clothing company

October 3rd, 2019

Thank you very much for you guys answers, it was really helpful to me especially @anuj.

Shubham Jain Business development

October 3rd, 2019

As you are looking to launch the business, would it be app or website ?

Clay Nichols Helping other startups grow after launching 2 successful startups.

October 3rd, 2019

Seems reasonable, but remember: your costs don't matter to them.


In this sort of negotiation, I'd find out more about their needs. Tailor your "offer" to their needs (bearing in mind your needs). They might have a vision of this business that is far more valuable and be willing to pay far more. For example, what it leverages their exist business. Suddenly you're far more valuable to them.


There is so much more they can provide you beyond simple money. If you learn more about their needs and wants you may strike gold.


Lastly, it seems like Partner and Investor are to very different beasts.

M.Narayanan Mummidi A Social Entrepreneur for the masses

October 2nd, 2019

Equal proportion