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OfflineBlackPeace
Self proclaimed CEO
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Registered: 11/18/07
Posts: 1,069
Loc: Canada Flag
Last seen: 8 months, 22 days
Business Startup: Grow slow or Sell equity again
    #19241555 - 12/07/13 03:47 PM (10 years, 1 month ago)

Hi,

So... I own a small company and I'd like to have your insight on the next decisions I'm about to make. I'll try to keep it short! (And I'm a french guy so please forgive me when a sentence sounds weird!)


*And sorry, I prefer to keep the nature of the business out of this topic until the strategic moves has been done.

:smile:

The history:
Back in 2008 I started a website project that changed radically to finally become a small company in 2011. At the time I was the only person in the project.

As I was planning to upgrade my investment (both in time and cash) into the project, a friend of mine entered the company. We split 51% for me, 49% for him.
A few month later, another friend joined so we decided to split the parts: 51-25-24%.
I invested around 5000$ in the project and both my two partners signed a deal with me to pay their parts each month. The plan was to acquire help early in the project. (By the way, this was [at best] half a good idea...)
We decided to focus our work on a single product to start with, and we needed more cash as my first 5000$ wasn't enough. The company borrowed 4000$.

The first salable version of the product has been developed and we made around 1200$ of income with it in the first month. The clients were happy, everything is good.

At this point, we invested on our website, equipment and marketing. We made adjustments and are getting ready to sell a lot more in 2014. The product still need improvements, but it's a good product in it's actual shape so we will continue to sell it in it's actual design and improve it over time.
We keep all the incomes in the company. So there is no salary until the time has come pay one of us full time on this. We all have to work full time elsewhere for the moment.
Our plan is upgrade our production to the next level so we can keep up with our competitors and offer different products.

What would you do?

Plan A:
Grow our business, buy equipment and upgrade the product as we get income from sales. At this rate, the company will grow a lot slower than our competitors but will require no furthur investment until someone go full time on the project.

Plan B:
I have another friend who would be a good fit with us, he has up to 8000$ to invest and he is the one who borrowed us the first 4000$.
He is very open and want to work with us...
I really think his help would kick us to the next level.

But really, should I really add another person in the boat? I feel I already gave up a lot of equity at this point just to produce more and grow faster.

I really don't think my partners will be ok with a 51/16/16/16 % deal. At all. I everyone tell me to never go under 51% with that.

What would you propose? A fixed salary agreement when the company reach a certain level of profits?
Royalties until he gets his money back?

Thank you very much for your insight! :justcantwait:


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Offlinepsyconaught
Chemical Connoisseur


Registered: 11/04/10
Posts: 6,100
Last seen: 7 years, 2 months
Re: Business Startup: Grow slow or Sell equity again [Re: BlackPeace]
    #19243409 - 12/08/13 02:04 AM (10 years, 1 month ago)

consider taking him on as an angel investor. That way you get your investment capital and retain a majority stake


--------------------
Think for yourself, question authority


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OfflineBlackPeace
Self proclaimed CEO
Male


Registered: 11/18/07
Posts: 1,069
Loc: Canada Flag
Last seen: 8 months, 22 days
Re: Business Startup: Grow slow or Sell equity again [Re: psyconaught]
    #19243740 - 12/08/13 05:40 AM (10 years, 1 month ago)

Thann you very much for your answer.


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OfflineBlackPeace
Self proclaimed CEO
Male


Registered: 11/18/07
Posts: 1,069
Loc: Canada Flag
Last seen: 8 months, 22 days
Re: Business Startup: Grow slow or Sell equity again [Re: BlackPeace]
    #19243759 - 12/08/13 06:01 AM (10 years, 1 month ago)

I have access for a 10% loan up to 8000. The problem is more about:

Giving up equity to have more hands at work as early as possible VS Spending a lot of money on salary (either pay one of the current partners or hire somebody from the outside).


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InvisibleLana
Head Banana
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Registered: 10/27/99
Posts: 3,109
Loc: www.MycoSupply.com
Re: Business Startup: Grow slow or Sell equity again [Re: BlackPeace]
    #19249114 - 12/09/13 08:14 AM (10 years, 1 month ago)

For $8,000 I'm assuming that neither you or your partners can get a traditional bank loan?  Is your credit not good enough for a bank loan?  In other words, why not pay interest on a loan instead of giving up equity in your company?

Maybe your friend can loan you the 8k but pay him more in interest than an average bank loan.  Or, have an agreement that if he loans you the money, you'll pay a certain percentage rate and if you default, you'll give up your equity in the company.  That's little riskier. 

Or, ask one of your other partners if they want to sell their stake in the company. 

You wrote:
"Giving up equity to have more hands at work as early as possible VS Spending a lot of money on salary (either pay one of the current partners or hire somebody from the outside). "

Equity is hard to get back once its gone.  If you have to hire someone, you can always fire them.  Once someone buys equity, its harder to get that equity back. 

Lana


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Myco Supply - Distributors of Mycological Products
http://www.MycoSupply.com

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OfflinePatlal
You ask too many questions
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Registered: 10/09/10
Posts: 44,797
Loc: Ottawa Flag
Last seen: 4 hours, 39 minutes
Re: Business Startup: Grow slow or Sell equity again [Re: Lana]
    #19254697 - 12/10/13 10:34 AM (10 years, 1 month ago)

I would grow slow.

Look at the show dragon's den or the french version of it. You see capable people with great ideas that ending giving away their business to strangers just so they can grow faster. To me, it's not worth it.

Borrow the money and pay interest on it. 8000$ isn't a big enough amount of money to dilute your companies equity. Your not in the stock market yet lol.

My tip: Grow slower, met pas la charrue en avant des boeufs, take your time. Fast growth isn't necessarily a good thing


--------------------


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Offlinepsyconaught
Chemical Connoisseur


Registered: 11/04/10
Posts: 6,100
Last seen: 7 years, 2 months
Re: Business Startup: Grow slow or Sell equity again [Re: Patlal]
    #19254896 - 12/10/13 11:23 AM (10 years, 1 month ago)

Quote:

Patlal said:
I would grow slow.

Look at the show dragon's den or the french version of it. You see capable people with great ideas that ending giving away their business to strangers just so they can grow faster. To me, it's not worth it.

Borrow the money and pay interest on it. 8000$ isn't a big enough amount of money to dilute your companies equity. Your not in the stock market yet lol.

My tip: Grow slower, met pas la charrue en avant des boeufs, take your time. Fast growth isn't necessarily a good thing



it depends on his market. Since we don't know what the product is its hard to give an accurate fast vs slow judgement. If you're involved in the tech industry at all you definitely want to grow as fast as possible.


--------------------
Think for yourself, question authority


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OfflinePatlal
You ask too many questions
Male User Gallery


Registered: 10/09/10
Posts: 44,797
Loc: Ottawa Flag
Last seen: 4 hours, 39 minutes
Re: Business Startup: Grow slow or Sell equity again [Re: psyconaught]
    #19254908 - 12/10/13 11:25 AM (10 years, 1 month ago)

Quote:

psyconaught said:
Quote:

Patlal said:
I would grow slow.

Look at the show dragon's den or the french version of it. You see capable people with great ideas that ending giving away their business to strangers just so they can grow faster. To me, it's not worth it.

Borrow the money and pay interest on it. 8000$ isn't a big enough amount of money to dilute your companies equity. Your not in the stock market yet lol.

My tip: Grow slower, met pas la charrue en avant des boeufs, take your time. Fast growth isn't necessarily a good thing



it depends on his market. Since we don't know what the product is its hard to give an accurate fast vs slow judgement. If you're involved in the tech industry at all you definitely want to grow as fast as possible.




Very true


--------------------


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OfflineBlackPeace
Self proclaimed CEO
Male


Registered: 11/18/07
Posts: 1,069
Loc: Canada Flag
Last seen: 8 months, 22 days
Re: Business Startup: Grow slow or Sell equity again [Re: Patlal]
    #19258809 - 12/11/13 05:31 AM (10 years, 1 month ago)

Thank you all! Sincerely.

The more I think about it, and the more I realize that giving up equity is completely stupid at this point.

As as soon as we grow our business a bit, my other partners are going to give more time to the business and get paid just a little bit so they don't end up losing money. It's really not like getting salary at this point, but I think it's a good idea to hire a bit of help if the sales are there. Even better if the help comes from us.

I'm sorry about keeping secret the nature of the business at this point, I know it cut down the fun of this conversation.
We are not in a very competitive market. The product is not unique, but it's new in our area. We have one serious competitor right now that opened business at the same times as us (give or take one month).

But since we had major production delays, our competitor get a lot more exposure which is really bad for us. We need to catch up very fast... Or risk getting seen as "just another X company, we saw that kind of product before from that other guy.


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Offlinepsyconaught
Chemical Connoisseur


Registered: 11/04/10
Posts: 6,100
Last seen: 7 years, 2 months
Re: Business Startup: Grow slow or Sell equity again [Re: BlackPeace]
    #19259747 - 12/11/13 11:48 AM (10 years, 1 month ago)

since you have another competitor i would suggest rapid growth. Also how much equity you give up depends on what the valuation of the company is. Theoretically you could bring on another party and give him 5% for $8000 at a $100,000 valuation.


--------------------
Think for yourself, question authority


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