Pub talk equity - biting me on the bum!

[Illuminati46]

Hello,

This is my first post as i've been reading threads with much interest on this forum and some of the advice is golden. Hopefully someone will emphasize with my position and offer an amicable solution, so here goes...

I set up a company 2 years ago and managed to acquire university grants to build prototypes. A family member then came on board and attended courses on behalf of the company which released monies for a couple of thousand pounds which helped to secure IP.

About a year past and once i got the initial prototype built, the family member was meant to do initial market feedback but declined to do so stating they didn't want to show people a prototype that would look nothing like the end product. I explained that the feedback was important to sense check development but no marketing was ever done. We argue about anything and everything but i do value their input from both attending the courses many moons ago and also knowing they they will relish the opportunity to sell once i have a final pre-production prototype in place.

My question is this, i drew up a preliminary contract between us that was never signed offering quite a large equity for the work to be done. Is there any way i can breakdown the initial equity release into small chunks, to be released as and when future milestones are hit and how is it best to offer this equity? Should i offer redeemable preference shares or redeemable ordinary shares? How will a future investor view this agreement? Can i offer a monetary value to the work done in the past and then offer equity from scratch?

Sorry for the amount of questions but i have run out of money and can't afford to get legal advice. I'll try to get info by having a free half-hour consultation with some local legal companies but would really welcome any advice anyone here may have to offer.

Thanks in advance and i am more than happy to help anyone who may have questions about their own business or just general questions about new product development, as i now feel i can help people not make the same mistakes i have made as it is such a quagmire when starting up, it's enough to put anyone off.

Regards
Anon

 

[Antonia @limeone.com]

There are loads of way to secure the business arrangements but they will all start with you sitting down with the other party and working out exactly what they are seeking. The legal agreement can be delivered at low cost once those decisions are made.

You can access legal advice free of charge from us by emailing us for a free telephone consultation on [email protected]. We can go into what is the best way to issue shares depending on what you are seeking from external sources and when and the needs of both of you now.

 

[Illuminati46]

thanks Antonia, i will take you up on the offer of a free chat as limeone seems to be very active in this forum and i'd very much appreciate any advice you may have to offer, thank you.

 

[DuaneJackson]

Welcometo the forums, glad you decided to join in!

Am I missing something? The contract was never signed so you can do whatevr you like as long as you're both agreable to it

 

[Illuminati46]

Hi DuaneJackson,

Indeed, no contract, no deal.

The thing is, the family member is my brother, twin brother at that. We shared the womb together but business is a whole different ball game.

I've put maximum effort in to getting where i've got but my brother just wants something to sell so i'm just unsure of how to reward him for doing some courses many moons ago and for releasing equity for the work he will do in the future.

As a side note, i'm about to chase down investment and wonder if someone could please explain the following i got from a banks website, as it sounds ideal:

"Equity release will be a mixture of redeemable preference shares and redeemable ordinary shares, e.g. a cash dividend of £0.xx per share is payable on Oct 08 to shareholders of ABC Ltd 5% Cumulative Redeemable Class A Preference Shares".

I guess i just want to be aware of how big the barrel needs to be when i'm bending over when approaching VC's. Some say that they give you monies and then convert 50% into a loan and ask for immediate repayment. Is this true?

Has anyone done an investment deal before and can point out the best way to release equity to biz angels?

Thanks in advance. (please PM me if you want more info)

 

[DuaneJackson]

In my limited experience of VCs, they do tend to ask for a chunk of it to be a loan - but not for immediate repayments. It's in their interests to make it work remember.

Re your brother. I'm not sure that he needs compensating for attending the courses. I assume you covered the cost of attending them? He got the knowledge - that should be enough.

Does he want shares for selling? Or would he be happy with a basic salary plus decent commision?