3 ms·

Maybe they like gambling?

• shanelja 13y ago
  It's only a gamble to a certain extent, for instance, even if her company fails, it's likely to happen in the next 2 or three years, that leaves another 7 or 8 years where she will require employment in order survive. Judging by her character and drive to succeed (she emailed 1000+ angel investors, is starting her own business, etc) I could see her occupying a fairly high wage job, in the $50,000 - $80,000 range, if we take a mid point, that's about $65,000 per year for 7 - 8 years. $65,000 * 7.5 = $497,500 / 10 = ~$50,000. Assuming that's true, they only stand to lose half - if her idea succeeds however, they could make millions. I would assume the investor isn't hard up of cash, so losing $75,000 would be a drop of water in the ocean, but making a few million would probably be a nice bonus.
  • aetherson 13y ago
    It's extremely unlikely that they'll make millions. For them to make even a single million, she'd have to earn $10,000,000 before age 29. Even if her business idea is relatively successful, a payout-to-founder of $10,000,000 after taxes is very unlikely. This concept is basically angel investing with some risk mitigation (if the business idea doesn't turn out, but the founder goes on to create another business or get a high-paid job as a non-founder, you get some money out of it), but with a much lower reward. The lower reward is as follows: A typical angel investor might get, I dunno, 5% equity in a company. In the case of this deal, the "angel" gets 10% of the post-tax amount of the equity that the founder keeps and turns into money. Which is AWFULLY rough! I mean, suppose that the founder maintains 30% of their company, and then converts all of that to cash, and gets hit with only 15% long-term cap gains, all in ten years. So the angel's effective equity share of the company is .3 * .85 * .1 = 2.55%.