Will you accept an investment offer of $150,00 for 30% stake in your company?

Question

A small tech company of 4 years old, made only $90,000 last year in revenue but made a loss. The company has $30,000 paid-up capital and basically 1 full-time staff and 4 interns. But this company just received a business grant (no equity, strings attached) of $350,000 to develop a product that's first of its kind in the world and potentially makes $14 mil in 2 years time. Now they are offered $150,000 for 30% of the company.

If you are the company's owner, will you accept the investment? Or how would you negotiate?

Answer 1

I would accept the $350,000.00 grant.

Since it is a corporation, I would allow them to buy preferred shares of non-voting stock equating to 30% ownership, and that pay a higher dividend than common stock.

The price of the preferred shares would be based on 30% of the actual value of the corporation however, the value of the corporation went up by $350,000.00 with my new grant (SMILE).

Answer 2

hi,

Its a gr8 Q. Thanks for asking such real-time Q.

Coming to yr pt. I m not sure if I undstood the prb properly or not, so m restating the same. The scenario is comp. is making loss (dnt know how much???). It gets a grant of $3.5L right now and potentially it MAY make $14 mn in 2 yrs of span (dnt know how???).

Now I`ll 1st decide wts my basic necessity right now. Is it money I really need or a Man-power? A need of man-power will again lead to need of money. So that I need to decide 1st, I need money and how much of them?

Now assume after 2 yrs the comp revenues comes to $14mn (we need to look for the sundary deductions). If I accept the $1.5 L offer for 30%, it`ll be around $4.2 mn share at the end of 2 yrs.

I`m not sure if a comp making a revenue of $90,000 in a yr making a loss would be very much profitable, assuming same kind of environments, even after getting $.35L grant, coz the product is still to be developed and deliver intime.

So as per this condition and above explanation I should sell the 30% share of the comp. Definately I`ll try to get as much as I can so u can negotiate anything more than $150,000 but even if I`m getting this much, at this pt. of time it seems doable deal to me.

If I`ve understood anything wrongly then do focus on that. Do let me know the final decision for sure.

Njoy,

Raj

Answer 3

if you got the grant - you don;t really need the additional capital investment right now do you? counter offer with a 10% equity - that you make your business capitalized worth equal 1.5 million