Forums: Discussions for entrepreneurs and small business.

Hello forum, I am Creative Director at a large, global advertising agency.
If you can see, you have seen my work, either on TV, print, online or on
that giant board you drive by on your way to the office.

However, I am not fulfilled. I need to start my own place. As a creative
guy, I have tons of ideas, TV shows ideas, product ideas, new application
ideas, invention ideas, etc. but I have no clue of how to start a company.
Business is definitely not my strenght, nor I want it to be. I am the
creative guy, that`s what I do.

BUT, recently I have been approached to start my own, niche advertising
agency. It is a unique and awesome opportunity with tremendous upside
potential. Everyone who hears about it want`s to invest in in. Very smart
and succesful industry people are calling me to have a meeting and
discuss how they can be part of it. I know that I will need these people to
start the place but I have no idea of what to tell them when they`ll
eventually ask about the partnership details.

I would appreciatte any help ou can give me on determining how to do
this? How much ownership of the company are investors antitled to? What
are the rules of thumb? What`s expected?

Thank you for your time and consideration.

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Thank you for your consideration,

cheers.

Ouch,,, that is a very critical thing to aswer.. first of all, why would you want your investors to own part of your business.. why not give them stock? Being a stock holder and stock owner are two different this if I am correct.. I had to leave this to the big guys... I hired a lawyer to help me with this... Let me see if I can dig some stuff up for you..

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Edgar Monroy
Web Developer / Owner / Consultant
When starting your own business the need to "know-how" is greater than money!
http://www.nuevolution.net

Nuevolution,

You confused me ,,,,

previously having my series 6  & 7 license (a stock broker license) in NY, I never learned there to be a distinction between the two.  A Stock holder  is an owner of shares of stock.  There are many different types of stock . common, preferred, accumulative preferred, convertable preferred just to name a few.  I need to know more about any potential differences.

Layka,

A little input.

In short, your objective is to get the money you need.  Don`t forget the details of having enough capital to operate your business for a given amount of time without any sales and possibly enough additional capital for potential gowth. 

I`m sure there is formula that would allow a calculation, the amount of money you will need to start this business, future profit potential, and the perceived risk/reward ratio to mention a few.  The higher the perceived risk the higher the reward needs to be.  IE government Bonds , the only guaranteed note which generally offers the lowest rate of return and  Junk bonds which can be as high as 25% or more because the investment community thinks there is a risk of default on the payment of the interest and/or principle.  I bring up bonds  because you know what the calculated rate of return is going to be if they pay off.  Stocks work in a simular manner. 

But it all comes down to the perceiption of the risk/reward ratio by the potential investor.  If its a sure thing (in their view) this will allow you to give them a smaller percentage of the firm for the same amount of investment capital. 

Since everybodies perceiption is going to be different.  I would go on an idividual basis, if at all possible.  Because if you can get away with giving one investor  10,000 shares on an investment of say 100,000$  and a different investor will give you 500,000$ for the same 10,000 share  why not?  Its a contract that each party is agreeing to.

There are many details  that give merrit to the idea of hiring a lawyer, yes, do your research  in advance to know what he/she will say and ask for.  Have an idea of what you want to do within the boundries of the decisions you need to make.

There are many things that you may want to consider,  what type of stock??

Common stock  has voting rights. Prefered stock doesn`t.  If the company goes insolvant the preferred stock would realize  its value  before the common stock gets anything.  Much of the time preferred stock will receive a dividends.

In your case, you are describing how people are all but falling over themselves to get a chance to take part.  Thus the risk/reward ratio will be in your favor, allowing you to keep more of your company. 

How much ownership of the company are investors entitled to?

They are only entitle to what you are willing to give and they are willing to accept.

One more thing, You definately  want to keep controlling interest,  you really don`t want to loose control of your dream.  Meaning you need to own a majority stake in the company at all times.  Remember this through out the life of the firm because if you offer employee stock options  now your shares are deluted.  If you need to sell more stock for growth reasons the same will occur.

Mike

ps. If you have any questions that I may be able to help with  please  call.

Thank you, Mike.

It`s very late now and I`m fried but I`ll give this the thought it deserves
and I`m sure I`ll have questions for you.

THX again.



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Thank you for your consideration,

cheers.