3 ms·

Well, you shouldn't rule out funding options. It's up to you to do the math. If you stay on the bootstrap path, you own 100% of the company, and have a slower

by brk 16y ago

Well, you shouldn't rule out funding options. It's up to you to do the math. If you stay on the bootstrap path, you own 100% of the company, and have a slower development schedule. If you take financing, you give up some ownership in exchange for acceleration. For most people looking at funding there is still a lot of "mystery". Can the team build the product? If they build it, will the users come? And so on. This leads to valuations that are highly speculative (lot's of risk involved), and funding terms that reflect this. For your case, much of the mystery has been removed. This also reduces the possibilities of crazy-high valuations, but also gives you a lot more power in the negotiations. My guess would be you might not be the traditional VC big investment big speculation kind of deal, but might look attractive to the lower-end of some of the super-angel sized deals. If your math is good, you could represent a good medium-risk investment. If you really "only" need $500k and you've got $200K of profit, I would tend to think you could investigate debt financing instead of equity financing. Silicon Valley Bank might be one outfit worth talking to about this.

adviceseeker 16y ago
If we took a smaller angel deal, to what extent would we likely be giving up operational ownership in addition to fiscal ownership?
- brk 16y ago
  There is no generic answer. My quick thoughts (and I'm not trying to pass myself off as an expert here, just have some basic experience). Valuations for businesses at your stage seem to vary from 2-5x annual sales, to 2-10x annual profits, depending on many many factors. But in either case that seems to put you in the $2MM-$5MM valuation range. If you're looking for a $200-$500K investment, you're looking at about a 10-20% equity stake. This would be a non-majority stake, so you should be able to structure this so than an investor (or group of investors if you got 4 or 5 angels) didn't have majority control... though in that case you'd probably have to pay attention to number of board seats if you actually took multiple investors. IMO, what you most likely need is an experienced (super)angel who can give you solid advice about managing the growth of the company. This would probably include introductions to finance people (eg: CFO/Controller types), cash management strategies, biz dev/strategist folks and so on. Basically you'd probably look for someone who brings a little money and a lot of connections who is looking to provide solid business guidance.
  - adviceseeker 16y ago
    Awesome advice -- thanks! Right now the product makes maybe $80k/yr. Not bad for something that hasn't officially launched, but hardly our companies key revenue source. We naturally would rather grow this than the consulting side of things. I think what I am seeing in this thread is that it probably makes sense for us to hold on investment until a bit after we've launched. We'll learn more about what our growth bottlenecks are that way and what we really need. It seems a bit premature at this point to take investment against our consulting income if we can avoid it. My guess is that we could probably get better terms if the product is doing well.

by brk 16y ago

adviceseeker 16y ago

If we took a smaller angel deal, to what extent would we likely be giving up operational ownership in addition to fiscal ownership?

brk 16y ago
There is no generic answer. My quick thoughts (and I'm not trying to pass myself off as an expert here, just have some basic experience). Valuations for businesses at your stage seem to vary from 2-5x annual sales, to 2-10x annual profits, depending on many many factors. But in either case that seems to put you in the $2MM-$5MM valuation range. If you're looking for a $200-$500K investment, you're looking at about a 10-20% equity stake. This would be a non-majority stake, so you should be able to structure this so than an investor (or group of investors if you got 4 or 5 angels) didn't have majority control... though in that case you'd probably have to pay attention to number of board seats if you actually took multiple investors. IMO, what you most likely need is an experienced (super)angel who can give you solid advice about managing the growth of the company. This would probably include introductions to finance people (eg: CFO/Controller types), cash management strategies, biz dev/strategist folks and so on. Basically you'd probably look for someone who brings a little money and a lot of connections who is looking to provide solid business guidance.
- adviceseeker 16y ago
  Awesome advice -- thanks! Right now the product makes maybe $80k/yr. Not bad for something that hasn't officially launched, but hardly our companies key revenue source. We naturally would rather grow this than the consulting side of things. I think what I am seeing in this thread is that it probably makes sense for us to hold on investment until a bit after we've launched. We'll learn more about what our growth bottlenecks are that way and what we really need. It seems a bit premature at this point to take investment against our consulting income if we can avoid it. My guess is that we could probably get better terms if the product is doing well.