Comments on: Could you answer these tough investor questions?

By: Mark Weyman

Mark Weyman — Wed, 08 Jan 2014 00:06:33 +0000

Two things I learned. First, you never make money working for someone else. Second, all “partnerships” tend to end badly.

By: Arthur Lipper

Arthur Lipper — Tue, 24 Dec 2013 23:44:35 +0000

If a business owner asks “What will $5.0 million cost me over 20 years if a 5 year loan is at 12% and a 15 year royalty at 1% of revenues commences on the loan repayment?”, the answer can be found by entering the likely revenues for the 20 year period at http://www.REXdebt-shareRoyalties.com. If projecting specific revenues is difficult just put in as many years as you can project and then use the CAGR feature by entering a Compound Annual Growth Rate of revenues for the years which are past the projected years.

The debt feature should make the capital raising much easier for business owners.

By: Michael North

Michael North — Tue, 24 Dec 2013 18:58:00 +0000

This article contains useful suggestions for the “Risk Assessment” section of a business plan — a section that is often understated, lacking force and detail compared to the upbeat narrative of the rest of the plan.

The ability to think in detail about the negative scenarios, and respond to them on his feet without resistance, is one mark of a potentially capable entrepreneur.

By: Arthur Lipper

Arthur Lipper — Tue, 24 Dec 2013 17:54:29 +0000

In the financing of growth royalties can be used to avoid equity dilution. Royalties can be paid on a segment of revenues such as revenue increases over an agreed level or on sales in defined geographic areas or on specific products offered by the company.

Owners should remember that royalty payments are tax deductible to the royalty issuer and are ordinary income to the recipient after recapture of investment.

Businesses are worth what buyers will pay and therefore owners should be aware of the valuations being placed by investors on comparable businesses.

By: Dan Hoefflin

Dan Hoefflin — Tue, 24 Dec 2013 17:37:21 +0000

What great, succinct questions! Thanks, Dave, for your continuous contributions to the entrepreneur!

By: Harry Keller

Harry Keller — Tue, 24 Dec 2013 17:18:31 +0000

These are good questions. How will they change for a company that is in revenue without having any investors yet? What if the company has already gone through profit, followed by loss, and achieved even greater profit through lots of grit and determination? Is a previous offer to buy the company a good basis for valuation?

Almost always, new companies have to change strategies in response to unexpected market events. Even old companies have to do this or fail (e.g. Digital Equipment Corporation). The smaller the company, the easier to adapt.

Fortunately for me, I can readily answer the questions. Also, I’m fortunate in not needed money to survive and grow but rather to grow much, much faster. We get to pick our investing partners. If you have a new business, try to get to that position before giving away a chunk of your company.