On Sep 6, 8:06 am, "william...@[EMAIL PROTECTED]
" <william...@[EMAIL PROTECTED]
> wrote:
> On Sep 4, 8:52 pm, NC <n...@[EMAIL PROTECTED]
> wrote:
>
> > You've missed the single most im****tant thing for you prospective
> > investors, THE EXIT STRATEGY.
>
> You are correct. I think IPOs and buyouts by other organizations
> are probably for the mid to long term.
Not really... Unless your investors expect a no-exit situation
upfront, they will not even consider investing in a company that
doesn't have a clear exit strategy. Moreover, you will likely have to
commit (in writing) to a specific exit date, which generally lies
between three and seven years from the time your investors write you
the big check (and several milestones during that period). Also, you
might want to know that venture transactions are often structured as
sales of ***ulative convertible preferred stock; essentially, it means
that in lieu of preferred dividends, outside investors continue to
ac***ulate the percentage of the company they own. If you wait too
long, the outside investors will simply gain control, fire the
management team, and liquidate the company one way or another, unless
you give them a good reason not to do it, in which case they may still
fire the management team for failure to stick to its commitments.
> In the short to mid term, holding onto the investment or buying
> out with debt financing, as you have pointed out, are the more
> likely scenarios.
I have pointed out no such thing. No-exit is the longest of all
investment approaches (no-exit situation may last decades). Buying
out with debt financing requires financial strength that very few
young companies possess, so you must be able to show how your company
can go from a non-entity to a creditworthy business within a few
years.
> > Also, what about a CFO? You'll need one...
>
> There is still much to be sorted out through the staffing or
> partner****p issues.
Not on the CFO front... You need someone capable of creating and
managing treasury, financial re****ting, and (potentially SOX-
compatible) internal controls in a rapidly-growing company. This is a
skillset that can easily cost you six figures in base salary alone...
> I have read on another thread that a viable alternative to giving
> out equity might be to guarantee a substantial ****tion of the
> profits for a number of years.
Not really... The definition of "profit" is extremely malleable,
leading to all sorts of disputes, including lawsuits. Just look at
the entertainment industry, where such arrangements (and related
lawsuits) are common. The latest big one so far: Tommy Lee Jones just
filed a lawsuit against Paramount Pictures for $10 million that he is
allegedly owed as his share of profits from "No Country for Old
Men"...
Cheers,
NC
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