Forums: Discussions for entrepreneurs and small business.

      My name is Randy and my business partner and I have created a line of products for iPod, submitted a patent, and began selling low production models over the net and to some specialty shops that are having great success re-selling the product.

      Recently we were approached by an existing company to discuss partnering to get the products mass produced and distributed. Basically we would be responsible for producing new prototypes, marketing, and sales while they would handle the cost of producing and distributing.

      My question is what kind or percentage of ownership is this worth? How can we be sure that they can and will do what they say they will? Now that we have a solid proof of concept should we look at angel investors again?

Thanks in advance for your input.

Randy,

My first question is "percentage ownership of what"? 

The patent?

Your ideas?

Sounds like a "joint venture" might be more appropriate.

Robert Johnson

-------------------------

Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

Robert, Its our company/product/patent, as I gather. Our first meeting with this company ended as "we needed to decide how much profit(%) we are willing to give up and how much expenses(%) are we willing to pay." We don`t have any money for these large expenses.

Basically, I feel that profit from the first product will fund the rest of the line. So as I see it we would need their funding through this stage. After that the company will be self sufficient, still needing the manufacturing and distribution but not any more funding. I see them investing 150K to get through the first production run.

So my question is if this is all they invested what kind of return would be fair as an investment and if we were to partner with them what % of ownership would this kind of investment normally aquire.

Randy,

Based upon the info you’ve given, I can see several possible directions regarding the relationship between the two companies. The optimum would depend upon many factors and I’d be happy to work through them with you.  However, there are two statements in your last message about which I wish to comment:

 

1 Basically, I feel that profit from the first product will fund the rest of the line. So as I see it we would need their funding through this stage. After that the company will be self sufficient, still needing the manufacturing and distribution but not any more funding. I see them investing 150K to get through the first production run.

Growing companies consume cash. Based upon our vast experience, it is rare for an enterprise to be able to “self fund” from its first production run.

2 Robert, Its our company/product/patent, as I gather. Our first meeting with this company ended as "we needed to decide how much profit (%) we are willing to give up and how much expenses (%) are we willing to pay." We don`t have any money for these large expenses. 

Their comment (above in quotes) sounds like they want to create some type of joint venture. Is that what you understand and want?

Also, what “large expenses” are you referring to in this comment? Marketing?

Robert Johnson

robert@bizgrowthmasters.com

-------------------------

Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

Dockone, I strongly encourage you to consult with somebody who has experience in dealmaking.  These things can get complicated and you could get taken advantaged of. 

I think you should treat this company as a supplier, for their investment you agree to purchase x units at x price.  Offer them exclusivity for x years to close the deal.  DO NOT give them ownership of your company unless that is your only option.  You have the power here, not them.  You have a great idea, patents and interested buyers.  They are merely a supplier, supplying a comodity that you could get made at 100`s of other places if you so choose.  Don`t get bullied!   

Good luck!

-------------------------

Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--

Thanks again for the great feedback. Your right we do need a good "dealmaker".I feel like we have jumped through most of the hoops that previous investors were concerned about with one exception. We have a proven product with lots of interested worldwide distributers, increasing sales, and a great marketing team in place to capitalize on our good press and internet exposure. The one thing we don`t have is a mentor or sucessful inventor that has been through all this to guide us along. I`ve been to local inventor`s club meetings and have benifited somewhat from these meetings but most people their are in the same boat as us or still trying to put a leg over in the boat. Internet searches haven`t turned up much in Atlanta in terms of mentors for new product development companies or inventors. The mentor groups I`ve found seem to be either Real Estate or investment related. Does anyone know of a mentor network that I may have missed or somewhere to find an "honest" dealmaker? 

Robert, I think that your right about the joint venture, and honestly I don`t know if it`s what we want, at least with this company. We have discussed the hope of a joint venture with one of the big players in the iPod auto accessory industry, but this company makes cases for iPod, not exactly as ideal for a joint venture. Because of their lack of knowledge of the industry I have doubts about everything they say. Can they produce quanities at the price they quoted? Can they deliver on time? Will the quality be good? Do they really have the distribution network they claim to have? What is our benifit past initial investment that would make me want to partner with this company? All very tiring and stressful but hopefully we`ll make it. We`re supposed to have another business meeting Wednesday with this company and I really don`t know how to play it.......I don`t want to look a gift horse in the mouth.....

I think you need the help of a small biz lawyer.  They will be able to wright a contract that addresses all of your concerns.  Worth the price.  Check the yellow pages for your area.

-------------------------

Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--