OK, let's start at the end...
On Sep 3, 12:29 am, "william...@[EMAIL PROTECTED]
" <william...@[EMAIL PROTECTED]
> wrote:
>
> Am I on the right track, or did I miss anything?
You've missed the single most im****tant thing for you prospective
investors, THE EXIT STRATEGY. How will the investors realize their
return? The two most common exit strategies for investors in early-
stage companies are IPO (when the company goes public, the initial
investors can sell all or part of their position in the company) and
sale to a strategic investor (say, you have a product that Microsoft,
IBM, Cisco, or another large company could integrate with their
offerings, so they would buy your company for the purpose of
controlling your product and its further development). Outside the
technology world, there are other options, such as leveraged buyout
(when your company is no longer an unknown quantity, but an
operational business with revenues and assets, you may be able to
arrange debt financing and use it to buy out your outside investors)
or the no-exit route (investors agree to hold onto their equity
interests indefinitely in exchange for a promise of high dividend
payout or controlling interest in the company, which would allow them
to institute a high dividend payout when the company is ready for it).
You, meanwhile, have given the exit strategy no thought at all...
> The company would be organized into strategic, management and
> operational units.
You really should change your vocabulary. To a business person, a
"unit" is essentially a company within a company, with its own defined
range of product offerings, a management team that has a certain
degree of independence, etc. For example, Linksys used to be an
independent company, then it got acquired by Cisco, but it remains a
fairly self-sufficient business unit within Cisco.
> I think I can lead the strategic unit, and find two other
> individuals to lead the management and operational units,
> mainly on a sweat equity basis.
Maybe, but will they (and you) be acceptable to the investors?
Professional investors have long since developed a habit of viewing
founding CEOs as interim figures; once the company gets to the revenue
stage, a search for a permanent CEO gets underway. More often than
not, a divisional manager from a large company gets picked for the
job. The founding CEO then gets seat on the Board and can go back to
whatever he/she does best (usually, product development).
Also, what about a CFO? You'll need one...
> Under this scenario, by the end of five years, if all
> units exercise their "stock options" to the fullest
> extent, I will still own 55% of the total equity, which
> still is a controlling interest I think.
Again, let's start at the end... Controlling interest depends on
supermajority provisions, if any, that are written into your cor****ate
by-laws. Certain decisions may require a combined vote of two-thirds
or even three-quarters of all shares to pass.
More im****tantly, if you think you can get through a few years of
successfully developing a start-up company and retain 55% equity
interest in it, you are deluding yourself. You'll be lucky if the
entire management team ends up with more than 30% of equity by the
time the IPO rolls around.
Cheers,
NC
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