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7 Replies Last post: Dec 6, 2008 10:05 PM by loan guy

How does investors work

Nov 24, 2008 12:33 PM

Gene2010 4 posts since
Jul 30, 2008

I am starting or trying to start a new venture and looking at the possibility of asking for a investor(s). I am not savvy in this area and would like to know from someone (SCORE member if possible) how this works. If an investor says i'll fund the asking dollars for 10% of your business . . . . does this mean I give him 10% interest on the money he is loaning or he is a 10% owner of my business and I give him 10% of the monthly profits from now on.

Thanks for any insight you can provide.

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NoBullFunding 278 posts since
Oct 6, 2008

1. Re: How does investors work Nov 26, 2008 6:05 PM

It's the latter. An investor takes equity in your company, meaning they participate on a pro rata basis in your profits and loss. If they were just charging you a %, they would be debt holders, with the most common example being a bank.

Just as an FYI, finding an investor is difficult. 99% of businesses are not businesses that investors would want to invest in. Unless you have an innovative product/service, or have started to develop a strong brand and franchise concept, an investor won't be interested. For example, I've seen members of this forum seek investors for clothing stores. Most retail stores concepts have low barriers to entry, so if an investor really wanted to be in the retail clothing business, they'd just go ahead and open one and find a manager. In other words most entreprenuers don' bring enough to the table to make an investor want to invest with them.

So in other words, you'd be better off spending your time trying to find a lender than an investor.

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intechspecial 1,457 posts since
Jan 6, 2008

2. Re: How does investors work Nov 27, 2008 12:27 AM

in response to: NoBullFunding

I have found what NoBullFunding says is true. You would be better off to develop a business plan and hit the pavement to find a bank that will loan you rather then to find an investor. I have had no luck on that side of things, but I might not have something that is of interest to investors as well. I have found no success locating government funding of any sort.

I do not know the ins and outs as far as how an investor will decide on who to work with, but NoBull's response makes sense.

Well, good luck in your endeavor, and be sure to keep us updated as to how your business is doing.

Mike

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LUCKIEST 7,935 posts since
Aug 6, 2007

3. Re: How does investors work Nov 27, 2008 8:31 AM

How does investors work

Back in July you wrote "I am trying to start a new business - Childcare Service or Daycare"

Is that what you are talking about. NOW. You can go to SCORE online (FREE) and find a SCORE Counselor who might be an investor or who has a legal background that can help you.

You should also talk to YOUR lawyer.

Good luck, LUCKIEST

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Gene2010 4 posts since
Jul 30, 2008

4. Re: How does investors work Nov 28, 2008 1:16 PM

Thanks for the information. I kind of figured the investment would be for the duration of the business, but since I don't have that insight wanted to be sure. Thanks again.

I do have another question. I was led to believe that banks will not loan money based on a business plan, regardless of how sound and lucrative the proposed product/service is. Has anyone gotten any type of loans based this way?

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Gene2010 4 posts since
Jul 30, 2008

5. Re: How does investors work Nov 28, 2008 1:49 PM

in response to: LUCKIEST

This is for the daycare and another venture I'm looking at. The daycare requires a lot more than anticipated, especially with the price of commercial real estate and the requirements to operate the daycare. To maximize the potential of having a daycare requires a facility at least 8,000 square feet and I have found in my area to get a property that will need minimum modifications start around $500,000 which is a bit out of my range right now.

I am putting together a business plan for another venture I'm looking at. It still will require commercial property but I think I can manage with a 3,000 - 5,000 sq ft facility. So far with preliminary figures operating the business at 70% capacity will net me about $200,000 profit over the first 12 months. But, again, I need to complete the plan and analysis and have them reviewed for accuracy.

Thanks again for your input and I will contact the SCORE group.

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NoBullFunding 278 posts since
Oct 6, 2008

6. Re: How does investors work Dec 6, 2008 7:52 AM

in response to: Gene2010

Your are 100% correct that a bank will not lend solely based on a business plan. There need to be real dollars (yours dollars going in, and real dollars already generated by the business on a historical basis) and you need to demonstrate real experience in running that type of business.

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loan guy 114 posts since
Dec 20, 2007

7. Re: How does investors work Dec 6, 2008 10:05 PM

Gene2010,

The investors I work with all struture fees on a per deal basis. Every deal is different. Do you have a business plan or executive summary I can review?

loanguy@walkerlender.com

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How does investors work

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