I have potential investors.. How does that typically work?

Discussion in 'Growing and Managing a Business' started by Lock912, Aug 16, 2010.

  1. Lock912

    Lock912
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    Long story short, i have a handful of people who are interested in investing in a business i'm starting. (i already run a fairly successful small biz and i want to add a second location in a much more affluent area)

    No idea how this works.

    For example, let's say a guy offers to put up $10k to help start up the biz. What is a typical deal that would be worked out as far as an incentive for him to invest in the first place?

    How do these deals work? Guy gives me $30k and i pay him back $35k? Do they keep their money in and get a certain % over a certain length of time? What happens if the biz tanks?

    I'm sure there are several options, some simple and some more involved, but any info i can get on this would be a huge help. Thanks.
     
  2. Kay

    Kay
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    Hi Lock912 and welcome to Business Advice Forum. :) It's not easy to advise you given the little information you've shared. Different laws and regulations apply in different countries or states. Could you please tell us where you are roughly at least and the type of business? Then we can go from there :)

    In the meantime, here's a few questions to ask yourself that are just as important as how much they want to invest, no matter what country you're in:

    How much say will they want in the day to day running of the business?

    Will they be sleeping partners or want to play a more active role?

    If you all want to do different things, whose decision is final? Would it be you as founder? The largest investor?

    What skills can they bring to the business apart from just money? Do they have personal strengths or weaknesses you can see that may help or hinder your future business plans?

    Things like that you need to think about as well. Looking forward to hearing more from you so we can help. :)
     
  3. Fergal

    Fergal
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    Welcome to our business forum Lock912 and thanks for asking your business questions. A lot will depend on the value that you and the investors have put on the business. Is the value of the business something that you have agreed upon?

    Have you prepared a business plan for the business?
     
  4. Lock912

    Lock912
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    Thanks a lot for the replies.

    It's in the early stages right now but it's been something i've been thinking of for years.

    No biz plan as of yet, just numbers of what it's gonna take. My plan was to get the biz plan ready then go to the potential investors who have expressed interest but i wanted to have a concrete idea of the types of deals that will be worked out with them.

    As far as their (the investors) stake in the company, they will not have any say in the day to day operations or pretty much anything.

    I may be bringing in one partner (who is a marketing wiz w/ management experience) and we may end up making one or more of the investors a silent partner.

    Sorry for the lack of specific info. I'm in New England and i currently run a martial arts gym. As of now we are more of a "hardcore" type of gym with an emphasis on competition and intense training.

    Plan is to set up a location in a more affluent area, tap into the popularity of my particular sport right now but to make it basically a more watered-down, commercial version of my current gym. Instead of competition and hardcore training the emphasis will be more on health and fitness. Instead of having a bunch of sweaty fighters hanging around the well-used gym beating up well-used equipment there will be only professional employees and the place will be pristine and have the finest equipment. There will mainly be group cardio type classes as opposed to learning how to really fight for competition purposes.

    Hope this helps and thanks again for any advice you can offer.
     
  5. seanstevens

    seanstevens
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    Mostly covered above.

    It will come down to how they want to invest v's how you want the investment to be treated.

    Is it going to be classed as a loan in which case you will have to pay back the money + interest over a certain length of time or are they going to be investing the money for a % of equity in the business and thus take a % of any future profits.
     
  6. Fergal

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    Sounds like a good idea Lock912, there was a similar business opened in my home town about a year ago. It's the first of it's kind in this area and you can view their website here.
     

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