Forums: Discussions for entrepreneurs and small business.

Hi guys, this is my first post in this forum, looking forward to many more!

I am in the process of starting my own business, but to do so, i will need to quit my day job and focus 100% on my new venture.

However, i will need to find an investor to invest 10k into my plan.  But i have never started a business before, nor have i taken on investors.

My question is, what do i offer an investor? do i offer them, a certain percentage of the profits for the life of the business? or do i just give them a 2x return when the funds ae available?

these may be stupid questions, if so, im sorry, but imlost here....

any help is appreciated.

thanks so much!

bagman27,

I appreciate your commitment. Although I can't offer you any specific answers with the limited information you've provided - I would like to offer some general comments:

First of all, I would delay leaving your day job as long as possible - certainly until you have a solid proof of concept and resources to meet your personal financial needs.

Ten thousand dollars is not very much capital to begin a business that will require your total focus.

Generally, a 2X return would be considered quite low as a return where the perceived risk may be viewed as high. Professional angels look for situations that could yield a 30-40% annual return. VC firms are looking for double digit multiples.

What you offer to an investor would depend upon several factors- most notably the risk perceived by the investor. The more you can do to reduce that perception, the better your likely to make a deal at terms you can accept.

Hope this helps. If you want to discuss your situation, feel free to drop me a PM or contact me directly.

Have to agree with Robert - scale your business down and work it part time while you keep your day job.

Most professional investors will not invest only $10K - they cannot get enough return on that small amount.

Most businesses that only need that small an amount - usually bootstrap their business - money from their personal credit cards, small personal loans based on personal collateral or asking friends and family for small investments.

If you can find a way to bootstrap your business, you will be much better off in the long run - and with less hassle. Most investors do not invest in business ideas but in proven management teams and as you stated, you have not done this before and have no traction with it now. Plus, are you ready to incorporate your business, hire a lawyer to review and issue your documents for the investor, hire a CPA, etc?

Most investors will take a portion of your business based on a pre-money / post-money value.  Let's say that you business - as it stands right now - is worth $10K and you are seeking $10K (for a total of $20K after the investment) - then the investor has put in 50% of the value and would expect 50% of the company).  But, your business is probably valued at $0 right now - thus, if an investor puts in 100% of the value - then he would expect 100% of the company.

You might also think about keeping your day job - get a peer-to-peer loan for the money you need - then use your pay from your job to pay the money back - all the while moving your business forward - part-time - until it can take care of itself and you.

I feel you should try bootstraping and keep your day job until you get some traction with your startup.

Something else to consider is that investors are extremely hesitant to offer money to an entrepreneur who is going to use it to pay himself. When you said you were looking to quit your day job and focus on the business, my first thought was "how much of that 10k is going to go towards personal expenses?"

Another tip to set your mind at ease is that investors will know exactly what they want from the deal before you meet with them. Investor compensation is not as easy as saying, "I'll give you this much.... how about it?" Let the investor make the first offer, then negotiate a bit lower to make sure he's not getting the upper hand.

The comments you've gotten so far may seem negative, but keep at it! Success in business relies heavily on learning from your mistakes, and learning from others can be better than making your own mistakes.

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Dave Ingram

Small Business Entrepreneur Blog

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