A question regarding my investor........f

[Theyellowaudi]

I appreciate all of the advice I've received so far. One day, I hope I can actually contribute information, instead of just consume it!
As I have mentioned earlier, I had a gentleman actually approach me about investing in my project. In his parting comment, he said "Just get all the usual financial projections to me, and a proposal about what I'll get out of it, & we'll make things happen."
I'm pretty much a novice at this, and I've gotten "all the usual financial projections" together. But, I don't know what my initial proposal for him should be. I don't want to short myself, and offer too much of the company to him, but I also don't want to sound like a complete novice to him & initially make him an offer that he wants to laugh at and walk away from.
I've read that "the standard" return for a VC is 7 times the funded amount in 5 years. Now, this guy is not a VC, and is actually a personal acquaintance. I actually tried to initially meet with him in his office, but he insisted that we meet at my place over a coupla beers. He's just that kind of guy.
Does anyone have any suggestions that might might be a good starting point?
Thanks.

[pendelton]

No problem, the word advice is part of the name. :)

Are you putting in any money?
How much time are you putting in, and what is a fair value of that time?
What is the ratio of what you feel your time is worth and money worth compared to his financial stake?
Is he going to do anything other than supply money?

You may well want to prepare several projections :
1. Basing this guy as a partner, using the ratio from question #3.
2. Basing it on him being a VC and being repaid as a VC.
3. Basing it on his overall value if he lends his name and effort to the enterprise.

Then, when you talk to him you are pretty much prepared, which will impress him even more. You can discuss the various possible roles with him that he can have, and reaching a fair decision based on that discussion.

You should try not to let him get more that about 30% of the business, unless conditions warrant it. This will allow you to have a 15% buffer in case you need to more money from another source, and, leaves you with the controlling 55% interest.

[Fergal]

Thanks for asking your question Theyellowaudi. This community wouldn't exist if members didn't ask questions and look for help, so your contribution is very much appreciated.

With regards to the financials, have you got projected cash flows and profit and loss accounts prepared for him? You should probably do these for 3 to 5 years.

Hopefully the financial projections forecast that the business will make a good return on the investment made. Personally I'd concentrate on the projected return to the business, at an initial meeting, rather than focusing on how the profits will be split. If your acquaintance is an experienced investor he will have his own opinions on this. You could take these on board at the initial meeting and tell him that you will consider them.

I wouldn't be in a hurry to make an offer to someone who has more experience than you. Also, I wouldn't be in a hurry to accept his first offer, assuming he makes one.

All of the above, is based on my incomplete knowledge of the exact situation you are in. If he is a certain type of person he might expect you to have an offer in mind at your first meeting and be disappointed if you don't have one prepared. So it might be worth having an offer in mind, but only give it as a last resort. If you do present an offer, make sure that it is not your best offer, because he will most probably try to negotiate it and try to get a better deal, even if your offer is better than what he was expecting.

Have you got an elevator pitch prepared, that will clearly explain what the new business does, in about 60 seconds?

Good luck with it and please keep us updated as to how you get on.

[scifi]

Hi! Theyellowaudi
See when you go for a new venture there are risks associated with every step u might take further in that business. But sometimes these types of risks are worth taking.
U r the only person who can access your investor the best. this time u have to trust your gut feelings or intution...
As far as deal is concerned I would like to suggest you that go for a fixed % contract which would be best for a short duration of 5-10 yrs of your association with that person.