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Advice on an investor who wants 50/50

Discussion in 'Financing your startup' started by Kieran1, May 8, 2016.

  1. Kieran1

    Kieran1 UKBF Newcomer Free Member

    Posts: 5 Likes: 0
    Hello, I have an early-stage start-up which has yet to begin selling. It’s in the healthy food niche and will be an organic product.

    There is someone who is willing to invest £5000 for 50% of my company. As it hasn’t sold anything yet all I have is the potential worth. This investor has been there and done it with a company in the same niche but with a different product. I am new to all of this and I’m still learning so I would appreciate any advice.

    Thanks
     
    Posted: May 8, 2016 By: Kieran1 Member since: May 5, 2016
    #1
  2. Gecko001

    Gecko001 UKBF Enthusiast Free Member

    Posts: 1,666 Likes: 264
    If you are unsure about it, do not do it and if you are sure about it, then do not go 50/50. A business always needs someone in charge.
     
    Posted: May 8, 2016 By: Gecko001 Member since: Apr 21, 2011
    #2
  3. consultant

    consultant I Can Help Your Business Staff Member

    Posts: 5,246 Likes: 730
    If 5k is all you need, get the money elsewhere!
     
    Posted: May 8, 2016 By: consultant Member since: Jan 21, 2008
    #3
  4. cjd

    cjd UKBF Legend Full Member - Verified Business

    Posts: 15,148 Likes: 2,984
    £5k is trivial money - it buy nothing at all, it's totally useless. Get it on your credit card. For god's sake get a grip.
     
    Posted: May 8, 2016 By: cjd Member since: Nov 23, 2005
    #4
  5. Kieran1

    Kieran1 UKBF Newcomer Free Member

    Posts: 5 Likes: 0
    Thanks for the replies. This is my first time running a business so I'm new to a lot of things. Plus I'm self-taught and have not gotten any business qualifications etc. so I may make mistakes along the way.

    The thing is, this guy is successful with his other company in the same niche and he would bring a lot to the table. He would do things I would never have thought of and help make it a success. It would be more than the money that he would bring.

    Is this still a bad idea to go 50/50 with him?
     
    Posted: May 8, 2016 By: Kieran1 Member since: May 5, 2016
    #5
  6. I_DO_MARKETING

    I_DO_MARKETING UKBF Regular Free Member

    Posts: 216 Likes: 52
    it could be the best move you ever made. Or it could be the worst!

    Welcome to business!
     
    Posted: May 8, 2016 By: I_DO_MARKETING Member since: Oct 24, 2015
    #6
  7. Kieran1

    Kieran1 UKBF Newcomer Free Member

    Posts: 5 Likes: 0
    haha yeah that's true it could be either. The way I am looking at it is this won't be my last business but it is my first. I will gain a lot of experience working alongside this guy and would prefer to have 50% of a company which earns a lot than 100% of a company that fails due to a lack of experience etc.
     
    Posted: May 8, 2016 By: Kieran1 Member since: May 5, 2016
    #7
  8. I_DO_MARKETING

    I_DO_MARKETING UKBF Regular Free Member

    Posts: 216 Likes: 52
    I think you have to trust your instincts. Nobody here knows this guy and his track record or contacts so it's difficult to say.

    It's possible you'll get little input, all the headaches, and it's certain you'll be doing 100% of the work. The beauty of being in business is not having a boss. As much as you would like the security of someone to call on, a 50% share means you'll never be able to do much by way of developing the risk-taking muscles that you need.

    Offer him 10% and see what he says?. As others have said, 5k is peanuts. You can raise that easily.
     
    Posted: May 9, 2016 By: I_DO_MARKETING Member since: Oct 24, 2015
    #8
  9. Clinton

    Clinton UKBF Ace Full Member

    Posts: 2,909 Likes: 930
    When I was investing in businesses if I offered someone £5K for 50% and he came back a few days later to bargain me down to 10%, I'd chuck him out on his ear and refuse to deal with him.

    If I've reckoned, with my years of business acumen, that £5K and all my time / expertise is worth 50%, it wouldn't be wise for a business novice to insult me with his own uninformed (and ignorant?) evaluation of my input and risk me walking away.

    I don't know what the OP has already invested in his business, but if he's offering 10% for £5K, he's valued his nothing business at £50K, 10x my valuation! I wouldn't want to mentor / partner with such a person. I suspect most other investors wouldn't either.
     
    Posted: May 9, 2016 By: Clinton Member since: Jan 17, 2010
    #9
  10. I_DO_MARKETING

    I_DO_MARKETING UKBF Regular Free Member

    Posts: 216 Likes: 52
    Good counsel

    I would think an experienced person would understand if OP said they wanted to keep a controlling share.

    I didn't mean to suggest asking the investor to take 10% for the same consideration as 50%
     
    Posted: May 9, 2016 By: I_DO_MARKETING Member since: Oct 24, 2015
    #10
  11. Clinton

    Clinton UKBF Ace Full Member

    Posts: 2,909 Likes: 930
    Just noticed an error in my last post (glad I spotted it before anyone else). Must have my morning coffee before typing :)

    I would work on the theory that if he's asked for £5K, he needs £5K and can't manage on £2K. In any case, the investor would see that the bulk of his own investment is not the cash, it's the time and experience he's contributing.
     
    Posted: May 9, 2016 By: Clinton Member since: Jan 17, 2010
    #11
  12. Paul Norman

    Paul Norman UKBF Ace Free Member

    Posts: 2,105 Likes: 616
    As an investor in other people's businesses, I am in reality throwing my money at a risk. I will simply not do this unless:

    1. I am in control of the risk, via a majority shareholding, or
    2. After due diligence I believe sufficiently in the other party that they are competent and experienced, and honest, enough to not need to insist on 1.

    The OP has confessed, honestly, to not really having any experience. A 50/50 offer, therefore is reasonable - although I concede we do not know enough for that to be more than an initial opinion.

    On the other hand, as pointed out above, to raise just £5k, I would not recommend going the investor route at all, unless you need and want their expertise.
     
    Posted: May 9, 2016 By: Paul Norman Member since: Apr 8, 2010
    #12
  13. MY OFFICE IN CHINA

    MY OFFICE IN CHINA UKBF Big Shot Full Member

    Posts: 3,583 Likes: 699
    It seems that the "investor" is not only bringing 5k to the table, but also (reading between the lines) experience, marketing, potential sales, plus other areas which the OP (seems) to know very little of.

    It's best advised to put in writing what each other, especially the investor, is going to contribute to the business, then get professional (and legal) advice on how best to draw up the agreement.

    As others have intimated, if it's a case of just adding 5k to the coffers, then this hardly warrants a 50/50 split.
     
    Posted: May 9, 2016 By: MY OFFICE IN CHINA Member since: Nov 16, 2011
    #13
  14. hawts

    hawts UKBF Contributor Free Member

    Posts: 42 Likes: 13
    Agree. £5,000 is such a small sum for start up seed money. You'll burn through that in no time. Be aware also about owning less than 51% of a company. I'm not a lawyer but I believe this is a crucial threshold in terms of being able to make executive decisions. Worth checking out or asking some of the solicitors on here.
     
    Posted: May 10, 2016 By: hawts Member since: May 9, 2016
    #14
  15. Daniel Brownell

    Daniel Brownell UKBF Newcomer Free Member

    Posts: 9 Likes: 2
    Hello Kieran,

    As attractive as having the whole investment covered by an experienced professional with pre-existing success in the same niche market at your business is, allow me to be the objective one to say that if you both own 50% of the shares then you will likely meet ownership issues further down the line if you and this investor do not agree on a particular decision and you have no way to internally resolve the issue if neither of you are willing to compromise.
    A possible solution for this would be ADR.

    Another point to know is that if this investor has another business in this niche market then it would be worth researching to see if they would be in a conflict of interest by holding shares in your business.

    Overall, my recommendation would be to either turn down this investor or ask for a slightly lower amount of shares for an equally lowered investment.
    If this is not possible then I would suggest declining their offer - it isn't worth losing control over your business for such a small amount of money that could be sourced in a variety of other ways.

    Hopefully this was helpful,
    Daniel Brownell.
     
    Posted: May 12, 2016 By: Daniel Brownell Member since: May 12, 2016
    #15
  16. mmarch

    mmarch UKBF Newcomer Free Member

    Posts: 2 Likes: 0
    Good luck
     
    Posted: May 30, 2016 By: mmarch Member since: May 14, 2011
    #16
  17. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    Posts: 8,032 Likes: 1,653
    %1% v 49$ would seem the obvious percentage with a proper shareholders agreement on what happens if they fall out or one wants to leave

    It seems like the knowledge is far greater worth than the money and knowledge is by far the most expensive thing to buy
     
    Posted: May 30, 2016 By: Chris Ashdown Member since: Dec 7, 2003
    #17
  18. Frequent_nomad

    Frequent_nomad UKBF Contributor Free Member

    Posts: 32 Likes: 1
    If its your first business, and the investor is experienced it may be a good opportunity to learn and develop your entrepreneurial skills. 50% of something is worth alot more than 90% of nothing.
     
    Posted: May 31, 2016 By: Frequent_nomad Member since: May 31, 2016
    #18
  19. SamLH

    SamLH UKBF Regular Full Member

    Posts: 142 Likes: 17
    Hi. How long have you been in the healthy food industry and how long have you been in business management industry?
    It really doesn't take much to say I'm gonna sell organic products yet you've got somebody offering you 5k for saying it.
    5k isn't a lot to the investors that have it, but for the very first step its a lot more than other people had.
    If I was in the same position I'd tell him 49% so I get to keep control, the 5k is enough to test the markets. If it doesn't work you've only lost a little bit of time.
     
    Posted: Jun 17, 2016 By: SamLH Member since: Jun 3, 2016
    #19