hi I’m Evan Carmichael welcome to an
edition of ask Evan today we’re going to
answer a question from a newsletter
reader Jay who’s trying to raise money
for his business and wanted some advice
on how to structure it so it’s a long
email so I’ll just kind of summarize it
he has a new idea he has investors lined
up and they’re waiting for him to get
back to them with a proposal of you know
what to do he doesn’t want to give up
equity and he doesn’t want to hire a
lawyer to structure everything I wanted
my advice and what to do so thanks for
the question Jay I think it’s a
challenge a lot of entrepreneurs go
through is how to structure deals to
fund their business the three most
common ways the first is to give up
equity so you give a percentage of your
business or the cash injection and
sounds like that’s not what you want to
do so that’s fine the second common way
is just a straight loan so they give you
X amount of dollars and you agree to pay
it back over a period of time and then
the third most common way is to have
some kind of hybrid so that they have a
loan where they’re making a certain
amount of money on a ongoing basis but
it’s convertible into shares so again
you’re giving up shares at some point in
time some other companies will do a
percentage of sales or percentage of the
profit it’s always better if you can to
do it on on the profit side of things
just because if you do in top-line you
could end up paying off your investors
and then not having any money left for
yourself at the end of the day so that’s
not going to help a ongoing sustainable
business there’s a million ways to slice
it you have to think what’s in your own
best interest when you’re looking at
these investors are the people who you
want to have on side with you for a long
period of time if you see them as as
just giving you money then you
probably don’t want them to be a part of
your equity and ownership structure so a
loan would be better or some kind of
profit-sharing which you have some kind
of clause we will apply them out at a
predetermined price that’s always a
great way to kind of get some money at
the start without giving up too much of
the farm and also being stuck with bad
investors but ideally you can try to
find people who can also help you out
longer term and not just be a source of
capital but can be a source of
connections and customers and help you
find partners and get you into the media
and they start thinking about your
business as a way for them to help you
know contribute and not just give me
money and in that sense it may be worth
going out and giving up a piece of the
business on the equity side even if it’s
a small piece just to make sure that
they’re you know always having your best
interests in mind so those are the three
most common ways if you want to do that
kind of revenue share like you talked
about on your email I would try to do it
on a profit sharing side instead of the
revenue so that you still are you know
making sure you’re making proper for
your business
I would probably though talk to a lawyer
it’s dangerous to structure these kinds
of things without having a lawyer help
you go through the process the more you
know what you want to do so hopefully
this video helps give you some ideas the
closer you get to what you want to do
the less time you have to spend with a
lawyer if you go to Laura and say here’s
exactly how I want to structure it can
you help me do it you won’t pay as many
legal fees as I’m not quite sure what I
want to do can you help me then you know
the billable hours start to add up but I
definitely talk to the lawyer it also
makes you look more professional a lot
of the companies that we helped finance
when I was in the venture capital
business had really really messy
shareholder agreements and it made it
really difficult to be able to raise
additional capital because it didn’t do
a property the first time so if you see
this is something that’s gonna be bigger
down the line and be able to you know go
and get more investors you need to make
a lot of money with it makes sense to be
able to do it right from the start so
that when future investors are
interested they see that it’s kind of
been done properly and they’re not going
to waste time fixing old mistakes so
hopefully that helps if you guys liked
the video please give it a thumbs up
that makes me want to do more of these
videos for you guys and if you have a
question about raising capital or or
comment on this video or another
question about your your own business if
you leave in comments below I always
read those to try to respond as many as
I can so thank you and we’ll see you on
the next episode
you
edition of ask Evan today we’re going to
answer a question from a newsletter
reader Jay who’s trying to raise money
for his business and wanted some advice
on how to structure it so it’s a long
email so I’ll just kind of summarize it
he has a new idea he has investors lined
up and they’re waiting for him to get
back to them with a proposal of you know
what to do he doesn’t want to give up
equity and he doesn’t want to hire a
lawyer to structure everything I wanted
my advice and what to do so thanks for
the question Jay I think it’s a
challenge a lot of entrepreneurs go
through is how to structure deals to
fund their business the three most
common ways the first is to give up
equity so you give a percentage of your
business or the cash injection and
sounds like that’s not what you want to
do so that’s fine the second common way
is just a straight loan so they give you
X amount of dollars and you agree to pay
it back over a period of time and then
the third most common way is to have
some kind of hybrid so that they have a
loan where they’re making a certain
amount of money on a ongoing basis but
it’s convertible into shares so again
you’re giving up shares at some point in
time some other companies will do a
percentage of sales or percentage of the
profit it’s always better if you can to
do it on on the profit side of things
just because if you do in top-line you
could end up paying off your investors
and then not having any money left for
yourself at the end of the day so that’s
not going to help a ongoing sustainable
business there’s a million ways to slice
it you have to think what’s in your own
best interest when you’re looking at
these investors are the people who you
want to have on side with you for a long
period of time if you see them as as
just giving you money then you
probably don’t want them to be a part of
your equity and ownership structure so a
loan would be better or some kind of
profit-sharing which you have some kind
of clause we will apply them out at a
predetermined price that’s always a
great way to kind of get some money at
the start without giving up too much of
the farm and also being stuck with bad
investors but ideally you can try to
find people who can also help you out
longer term and not just be a source of
capital but can be a source of
connections and customers and help you
find partners and get you into the media
and they start thinking about your
business as a way for them to help you
know contribute and not just give me
money and in that sense it may be worth
going out and giving up a piece of the
business on the equity side even if it’s
a small piece just to make sure that
they’re you know always having your best
interests in mind so those are the three
most common ways if you want to do that
kind of revenue share like you talked
about on your email I would try to do it
on a profit sharing side instead of the
revenue so that you still are you know
making sure you’re making proper for
your business
I would probably though talk to a lawyer
it’s dangerous to structure these kinds
of things without having a lawyer help
you go through the process the more you
know what you want to do so hopefully
this video helps give you some ideas the
closer you get to what you want to do
the less time you have to spend with a
lawyer if you go to Laura and say here’s
exactly how I want to structure it can
you help me do it you won’t pay as many
legal fees as I’m not quite sure what I
want to do can you help me then you know
the billable hours start to add up but I
definitely talk to the lawyer it also
makes you look more professional a lot
of the companies that we helped finance
when I was in the venture capital
business had really really messy
shareholder agreements and it made it
really difficult to be able to raise
additional capital because it didn’t do
a property the first time so if you see
this is something that’s gonna be bigger
down the line and be able to you know go
and get more investors you need to make
a lot of money with it makes sense to be
able to do it right from the start so
that when future investors are
interested they see that it’s kind of
been done properly and they’re not going
to waste time fixing old mistakes so
hopefully that helps if you guys liked
the video please give it a thumbs up
that makes me want to do more of these
videos for you guys and if you have a
question about raising capital or or
comment on this video or another
question about your your own business if
you leave in comments below I always
read those to try to respond as many as
I can so thank you and we’ll see you on
the next episode
you
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