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investor question...

by Jay Moreno
5 replies
not sure if anyone else as ever done anything like this - its actually a first for me but i have a project that i managed to get some investors for

before i continue i have all my investors so before anyone tries to question my motives for posting this no i am not looking for anything but advice

i have had to answer tons of questions and address things that i had never even imagined before but its been a great learning curve and all my investors seem happy and ready to commit - am having paperwork written up right now to seal the deals.

However i got one question a little while ago which has stumped me a little bit and this is the question that was asked...

the investors are putting up money for a percentage of the profits of the project for 5 years - but one of them asked is there a way an option can be worked in to extend the profits permanently or for another set time period?

and i dont know how to respond?

of course am thinking the project will be a success and be very profitable but am not sure how i address this request - theoretically i could just ask for more money up front and right now, but then i would also have to offer the rest of the investors the same deal, i have one that has already committed to two of the investment packages that i offered and am not sure if they have the money to invest further but also I dont want them to be pissed if i offer the extended deal and they want to commit to it but cant. Am really trying to not to rock the boat and possibly loose the investors i have already.

also i could say at 5 years there will be an option to re-invest but how do you even begin to put a value on that right now... as obviously we dont know the value of the project in 5 years time...

i guess i am looking for anyone who has experience in this and can offer up some friendly advice - we are supposed to be closing the deals out with the paper work on monday.

Thanks in advance for your time!

jay
#investor #question
  • Profile picture of the author Sparhawke
    They are asking for a permanent royalty deal, it is a reasonable request but you should really look at the equity you are giving away too...it might be worth your tme to figure out if they will invest in your company, and once they have got their initial investment back you can drop down their equity for a royalty...

    You are going into a legal minefield I think though, it is something you should think very carefully about...

    You cant think about reinvestment (SPO) right now because you cannot predict the future...
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  • Profile picture of the author gsheldon
    Originally Posted by ukescuba View Post


    i guess i am looking for anyone who has experience in this and can offer up some friendly advice - we are supposed to be closing the deals out with the paper work on monday.

    Paper work? On Monday? What did your attorney advise you? I am sure you wouldn't sign paper work without have your lawyer review it first and explain any part of it to you that you do not understand, so you know what your rights and obligations are.

    Look at the recent news about the Facebook investors/creators. They are still fighting over their original deal.
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  • Profile picture of the author Jay Moreno
    thanks guys for your quick response i sincerely appreciate it!

    @Sparhawke that certainly makes sense thanks...

    @gsheldon its my attorney thats drawing up the paper work over the weekend hes a friend of mine - we where going to be handing over the paper work for review on Monday to the investors

    i havent been able to discuss this with him yet and am unsure how to even address the question and have been mulling it over for a few hours hence why i posted the request for advice from you guys

    without a doubt i am trying to avoid the problems or scenarios that Facebook is facing by trying to make everything CRYSTAL clear so everyone knows where they stand when the paper work gets signed
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    • Profile picture of the author ajwilliams
      Just one caveat for you. Be sure you do not have more than 25 investors as this would cause you to issue some sort of stock on a public basis and you would be really involved in an expensive proposition.

      I believe it is more than 25 investors. It could have changed. But, if you have more than 25 investors, better check it out before proceding. It sounds like you only have a few investors, so you are probably ok there.

      One thing you could do with your original investor/s perhaps, is to offer him/them some sort of stock options after 5 years at a discount off what the stock would normally sell for at that time. After all, a percentage of the profits is actually stock in some form.

      I could be a little out of my league here since it has been many years since I was involved in this sort of thing. Just some food for thought.

      A J
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  • Profile picture of the author Jay Moreno
    thanks alot AJ for your input - i only have 4 investors, even with 4 its been a big learning curve i cant imagine having to handle 25 or more or these multi million dollar deals i hear about! lol
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