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5x or 10x seems ridiculous, they have revenue not an exit, you have to ask yourself if they would have accepted that when you made the deal. Loan sharks give b

5x or 10x seems ridiculous, they have revenue not an exit, you have to ask yourself if they would have accepted that when you made the deal. Loan sharks give better terms than that. Since you didn't do it under any terms I'd suggest using either one of the 'standard' convertible debt termsheets floating around that YC etc use, or picking the highest reasonable interest rate they might have gotten if they went to a regular lender.

gus_massa 13y ago
YCombinator had published (~3 years ago?) some "standard" documents: "Series AA Equity Financing Documents" http://ycombinator.com/seriesaa.html http://ycombinator.com/seriesaa.html I hope one of them is usefull.
kennethologist 13y ago
Thank you for your input. Just a little more information don't know if it changes anything but the startup came to me with nothing but an idea. No proof of concept only an excel spreadsheet with potential revenues etc. The money I loan them gave them the necessary finances to start the company and I would go out on a limb to say without the money the company wouldn't be in existence today. Ps. I also purchased equity initially with an investment of 75K for 30% of company. 3 months in the company needed additional funding as development of the application went over schedule and budget.
- benologist 13y ago
  If the 75k was done under specific terms why not use them for the additional 50k? That would give you 50% of the company, a valuation could be calculated based on their profit they can use to buy you out?
  - kennethologist 13y ago
    I felt that would not have been unfair. Also I felt that owning 50% of the company wouldn't give the founders enough skin in the game to really give the idea their all.
    - benologist 13y ago
      It's not really about taking the extra 20% it's just easier to value what that contribution was and is now worth that way. I also think one last thing to consider: was this money lent with the possibility of it never being repaid, or was this a loan that the founder/s would have carried with them if the business failed? If there was never any risk that you would lose the money then I think that lessens what you should expect to receive for it.
      - kennethologist 13y ago
        I agree with you in retrospect and most certainly if make an investment in the future will structure it much better. With regards to the repayment of the loan. No. If the the business had failed I would have written off the money.
- tptacek 13y ago
  None of this changes anything. A loan is a loan, an investment is an investment. If you expected a gigantic payback from your initial infusion of cash, you should have had terms locking that in. As you probably know, you also can't "call in" your investment, either; it will remain illiquid until they agree to purchase the equity back or have an exit.

gus_massa 13y ago

YCombinator had published (~3 years ago?) some "standard" documents: "Series AA Equity Financing Documents" http://ycombinator.com/seriesaa.html http://ycombinator.com/seriesaa.html I hope one of them is usefull.

kennethologist 13y ago

Thank you for your input. Just a little more information don't know if it changes anything but the startup came to me with nothing but an idea. No proof of concept only an excel spreadsheet with potential revenues etc. The money I loan them gave them the necessary finances to start the company and I would go out on a limb to say without the money the company wouldn't be in existence today. Ps. I also purchased equity initially with an investment of 75K for 30% of company. 3 months in the company needed additional funding as development of the application went over schedule and budget.

benologist 13y ago
If the 75k was done under specific terms why not use them for the additional 50k? That would give you 50% of the company, a valuation could be calculated based on their profit they can use to buy you out?
- kennethologist 13y ago
  I felt that would not have been unfair. Also I felt that owning 50% of the company wouldn't give the founders enough skin in the game to really give the idea their all.
  - benologist 13y ago
    It's not really about taking the extra 20% it's just easier to value what that contribution was and is now worth that way. I also think one last thing to consider: was this money lent with the possibility of it never being repaid, or was this a loan that the founder/s would have carried with them if the business failed? If there was never any risk that you would lose the money then I think that lessens what you should expect to receive for it.
    - kennethologist 13y ago
      I agree with you in retrospect and most certainly if make an investment in the future will structure it much better. With regards to the repayment of the loan. No. If the the business had failed I would have written off the money.
tptacek 13y ago
None of this changes anything. A loan is a loan, an investment is an investment. If you expected a gigantic payback from your initial infusion of cash, you should have had terms locking that in. As you probably know, you also can't "call in" your investment, either; it will remain illiquid until they agree to purchase the equity back or have an exit.