I received an unusual investment offer – need advice !

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  • #507344
    Avatar of AlexAlex
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    Hey folks, new member here!

    I created my meal prep startup 5 years ago, and I run it on the side of my job. Over time we’ve grown to 650k$ / year revenue, and I’m by far the growth bottleneck. With a proper marketing budget and me going full time, I’m convinced we can grow ten-fold over the next few years.

    Last week I met someone who’s apparently a high worth person (300M ? though I need to check), and he LOVES my concept. He would very much like to invest in my company and he seems genuine. This could be a great opportunity.

    His investment offer was a little weird, and I haven’t yet had a chance to discuss it a bit longer. He wants 50% of the shares of the company, and basically, he says that he will fund 100% of my needs and I will owe him 50% that I may or may not pay back. Basically, if we open a new production kitchen for say 250k, he will pay it all, and I will owe him 125k. I can either repay that over time, or choose to not do so, in which case he will recoup his money when we sell: i.e. if we sell for a million, he will get 500k (50%), and then whatever is left to pay of the 125k, and I will get the rest. He’s open to paying my salary as well, and he seemed very relaxed about funding growth and not caring about profitability too much for a few years.

    I’ve never heard of this type of investment. From what I understand this is not a one-time payment (i.e. I value your company x and I give you y for a percentage of your shares), but rather a partnership in which I run the company and he funds everything against 50% ownership. He seems to have very deep pockets and wasn’t turned off by the idea of opening 10+ new kitchens over the country for example.

    What do you guys think? Is this a common scenario? Are there things I should ask in particular or make sure I get right?

    I’ve never had to raise money before, and this is unsettling for me, but potentially a huge opportunity as well. Thanks for your help !!

    Alex

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    • #507347
      Avatar of Matthew KingMatthew King
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      • Total Post: 153
      Points: 1,863
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      Hey Alex,

       

      This does sound like a great opportunity. What does through me off here, is that he wasn’t super interested in profitability of your company. I would definitely hire some help with this and speak with law attorneys if you want to take this on.

      I would also make sure to get NDAs signed before you go too deep into your company with your possible investor. You’ll want everything in writing…do not rely on verbal agreements. It is pretty normal for someone to invest in your company and basically they gain equity in your business (which in turn nets them more than they invested).

      You’ll definitely want to make sure the investment structure is clearly laid out. I wouldn’t accept anything that isn’t crystal clear about the investment (aka, pay back or not, or get equity, etc.)

      So, don’t move forward until that is fully stated and written.

      The second part is mainly just taking the time to answer a simple question. Do you really NEED and WANT the investment?

      You weren’t looking for an investor and this one just kinda popped up.

      Third, what other value does the investor bring? Is there something there other than cash. Does the investor have important contacts in several industries, can they give business advice, etc?

      Let me know if this helps.

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