Forums: Discussions for entrepreneurs and small business.

Good morning,

 

 I'm new to startup nation and new to business in general. I have product i am having manufactured (in the near future). Costs are estimated at about $150,000 to realistically bring to market. The manufacturer has offered to absorb some of the cost (to possibly all of the cost) as they are interested in a stake in the company I am (or we are) to form to sell it.  My question is, what is a fair percentage of either: profit per unit or of stake in the company for them? I don't have much startup capital nor do I want to risk taking out the loans myself in case it flops and is unsuccessful. I want to be equitable for both sides and do not wish to get ripped-off.Thanks for any advice.

 

 

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Linda,

I can't give you a definitive answer without a lot more information, but I will offer a few comments:

1. Paying for goods or services with equity (especially early stage equity) can be VERY expensive in the long run.

2. While the "right " amount is often elusive - ultimately you both must agree on it. The difficulty with an early stage company is setting a valuation.

3 Consider that you and your company will be "married" to this manufacturer. solving problems or making changes could get to be very painful and expensive.

4. Be sure your agreement spells out who owns what.

5 Getting the product produced is only part of the process. How will you get customers? What support will be needed? What are the logistic considerations? How will you fund these activities?

I don't know your ultimate goals for this product - but I suggest developing a Capital Strategy that will enable you to fulfill those goals.

 

If you want to discuss your specific situation, feel free to send me a PM or contact me directly.

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