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not sure i'm convinced by the economics of this. amateur investors would compare this to other more standard investment options. let's say they invest a typical
by Harj 17y ago
not sure i'm convinced by the economics of this. amateur investors would compare this to other more standard investment options. let's say they invest a typical seed amount of $25k. assume they could earn approx 10% a year via "safe" investments.
as suggested in the article, you offer to double the investment by paying 4% of sales. that means you need to be bringing in $1.25 million in sales to repay the investor. using an (admittedly rough) assumption, let's say that takes 5 years to achieve. in the same time, if the investor had played it safe, their $25k would be (assuming compounded monthly interest at the 10% rate) $41k i.e. almost doubled anyway.
in the current economic climate 10% interest might be higher than expected and you could obviously fiddle around with all the numbers/assumptions to make it a more attractive investment but my instinct is that to sell this to the types of investors who would entertain something like this, it could end up being a more expensive way of raising finance than it initially appears.
- byrneseyeview 17y agoWhat safe investment pays 10%? And if you had a 4% royalty $250K in annual sales, that's $10K per year in revenue -- which you'd probably value at something much higher (maybe $50K if you thought it wouldn't keep growing; maybe $250K or more if you expected further growth).
- Harj 17y agoWhat safe investment pays 10%? i use lendingclub.com http://en.wikipedia.org/wiki/Lending_Club http://en.wikipedia.org/wiki/Lending_Club during less severe economic times you could also make around 10% via high yield savings accounts
- byrneseyeview 17y agoThat may be true, but safe investments generally pay less than that. Lending Club might be a good investment, but I'd think of it as a peer-to-peer credit card, not as something that competes with T-bills and commercial paper.
- ianferrel 17y agoUnsecured lending to individuals is not, in general, a "safe" investment. Lending Club hasn't even been around long enough to reasonably estimate how safe it might be. Note that I'm not claiming it's a bad investment, but it really stretches the traditional financial definition of "safe." And the highest I've ever seen for high yield savings accounts was around 6%, generally only for a promotional period, around 2007. Unless you're talking about the high inflation years in the late 70s and early 80s, in which case, yes, you could get 10% in a savings account, but the real rate of return was well into the negative due to inflation.
- Daniel_Newby 17y ago"assume they could earn approx 10% a year via "safe" investments." An instrument with a risk adjusted return of 10%/year is called a junk bond.