4.
Re: Private and family investors and sales reps. Nov 30, 2008 12:18 PM
Usually a private investor (such as family) or angel investor is a straight equity investor (or places the funds with you as convertible debt). That means they buy part of your company (the stock) for part of the ownership. Depending on their own requirements that may be a minority position (less than 50%) or majority position (51% or more). Rarely would you see a 50/50 split and frankly that is not a good position to be in since no one has clear control of the business direction if it came down to a ‘vote'. As a business owner unless you have some real compelling reason to do it ... never give up more than 49% of your business to investors. My opinion of course.
Unless you are using what is often called a "Revenue Sharing Note" (which spells out that you are paying them back based on a percentage of gross sales) to secure what they loan you (the debt), the investors share of the profits would depend on how much of your company they own. If they are loaning you the money and you use a Revenue Sharing Note to secure the debt you negotiate how much of a percentage is acceptable to you and them for the payback and term. Be very cautious about structuring this kind of note though; remember if you give up too much off the top (gross sales) ... it can make the bottom line (net profits) too thin and affect the viability/sustainability of your business.
With more sophisticated angels, you sometimes will see them (and VC's) use a convertible note (sometimes called a debenture) to secure the capital they put into a company. That means they put the money in as debt (loan the money to the company) and in return get paid back with interest ... since their money is at significant risk (especially if you are new company or start-up) they want it structured as debt so they can recoup some of the money if the business fails. When a business fails creditors sometimes have a shot at getting some money back by seizing assets and selling them to re-pay the debt or going after any personal (non-business) collateral if tied to the debt. Equity investors do not have any recourse if the business fails. But if the business has real growth prospects, the note will probably have conversion rights so that if the business succeeds they can change their debt to equity (stock) in the company. That is the "sweetener" in the deal for the angel investor and often is referred to as an "equity kicker".
Regarding what to pay independent sales reps. Different industries have different rates for this, so you will need to do some research specifically on your industry to see what is acceptable. You might want to visit your local SCORE office or SBDC (Small Business Development Centuer) to see if they can help you with that or check online for any professional organizations/associations connected with your industry that can provide you some specific info.
If you have other specific questions, post them here or feel free to contact me and I will help you as best I can. I hope the above helps. Good luck and best wishes with your business.
Dennis Lowery
Adducent, Inc.
