Super curious if anyone knows how exactly does getting investors to a company work?
Let's say you have a company that turns over 300-400K, x% profit margin. If you get investors - how much of it becomes working capital vs how much of it becomes yours to keep?
Do you have to pay tax on it?
What else needs to be considered?
How Does Getting Investors for a Company Work?
RickyPoontang on 15/12/2023 - 22:41
Comments
how much of it becomes working capital vs how much of it becomes yours to keep?
This depends on whether you are selling your existing shares or getting investors in by creating new shares. The former doesn’t give the company any additional assets, the money goes to you (and it’s a taxation event). The latter the money goes to the company to fund future investments/working capital, but it’s not taxable.
There are various organisations that will try to locate investors for you, angel investors, seed investors, private equity etc, but for a company that size you are probably looking at someone who wants to be a co-owner involved in the business
Make an appointment with a Venture Capital firm and make your pitch ;)
how much of it becomes working capital vs how much of it becomes yours to keep?
LOL state you will be cashing it all out personally and see how every VC company responds (hint: you will be frog marched out the door)
If you want to cash out, sell the company, don't lie to potential investors …
Google "ponzi scheme" for all of your answers.
That makes cents. Cheers.
?
The OP's company, Aerotyne International, is a cutting edge high-tech firm out of the Midwest awaiting imminent patent approval on the next generation of radar detectors that have both huge military and civilian applications. Our profit on a mere $6,000 investment could be upwards of $60,000!
The Gerry way: Get a falsely named dog with sharp teeth…
The Elizabeth Holmes way: Fake a baritone voice and get SH's on the board like Henry Kissinger.
There is so much capital around it has become easier to be a fraudster than doing hard work!Speak with the company accountant would be the first thing to do, then the company lawyer then OZbargain.
Most get capital from the
3Fs
Friends Families and Fools
Google it. and it will lead you to some advice that might also be enlightening
https://www.forbes.com/sites/richwinley/2015/08/21/friends-f…
Thanks for all of the helpful results. Not sure why Ozbargain gets so many nasty replies to a legitimate question…
so many nasty replies
And which are they?
You asked a question, expect a variety of answers.
If there was a simple foolproof answer then you wouldnt have needed to come here.
Seriously go away unless you are prepared to get a variety of answers and at least acknowledge the ones that are helpful. If you cant, dont bother to see anyone who would potentially invest in your business, they would kick arrogance up the back side.
Heres an example: The OP's company, Aerotyne International,(youtube.com) is a cutting edge high-tech firm out of the Midwest awaiting imminent patent approval on the next generation of radar detectors that have both huge military and civilian applications. Our profit on a mere $6,000 investment could be upwards of $60,000!
Surely you'd sell your own house and use the money to times it by 10 yourself before you'd share the secret to strangers.
@AustriaBargain: Well it's not quite a money issue - more a if I can get an investor with media contacts can get the business a lot more visibility
Did you read the Forbes article?
Its not just the Numbers, its also how you present them. Thats why I posted that link rather than go thru all the details that the article prosecutes well. There is no exact science here, all business ventures have risks, for both parties, but being prepared with figures AND image is critical. Investors are buying into a business as well as the people who run it.
The Forbes article covers more of your presentation rather than the exact financial aspect. Its your job, plus only you have those figures, to put the numbers together.
$300–400K? Is that per week/month/year? There are Amway/Norwex/Tupperware consultants turning over more than that. If you can't finance via business lending I advise career counselling and lottery tickets. An SME owner doesn't get to keep anything; just salary, perks and dividends until you can sell/merge/acquire further down the road.
The reason to give up a huge share of your business to an investor is because their investment will help the business grow faster, which will make you more money in the long run despite owning less of it. Their experience may help the business grow even faster too, experience they are only too happy to share now that they are invested.
You need that growth if you're going to get rich. You could just sell the whole business, but then you won't be invested in it anymore and you will miss out on any share of the massive growth.
dudes already thinking about how much investor money he can keep. let us know how it goes.
Having his cake and eating it too.
First ya need a business model people would invest in ;)
Super curious if anyone knows how exactly does getting investors to a company work?
It varies massively and there is no single way of doing it. What they get out of it, what they put into it, it can be a variety of things. You might give them the shares or a portion of the company for free if they bring something to the table in lieu of a salary.
Let's say you have a company that turns over 300-400K, x% profit margin. If you get investors - how much of it becomes working capital vs how much of it becomes yours to keep?
You need to agree that with the investors. Some investors might be willing to purely buy out a share in your company from you, in which case you're just selling some of your shares. If you don't have a company yet (i.e. you're a sole trader), you'd create a partnership or a company as part of the process. Let's say they want a return of 20% a year on what they buy, if you're currently making $80k a year then you hand over 25% of your shares, you keep $100k. But next year they get $20k of your $80k profit. But much more likely they would want to put $100k into the business and you have a plan on how to grow the business using that $100k and make bigger returns for both of you.
Do you have to pay tax on it?
If they are adding capital to the business then probably not. If you are selling a portion of your company then yes, you need to pay capital gains on it. If you take money out of the business at all you have to pay tax on it (unless you lent the company money).
What else needs to be considered?
The structure. What do they own, how are dividends paid out, a new company agreement, what say they get in the running of the business, what your long term business plan is to make someone want to buy a chunk of your business. It is highly unlikely someone would buy some of your shares from you if you're mostly working alone - you could just stop working and they're left with nothing. Much more likely is they take a chunk of the business in exchange for experience and capital investment to grow it. That involves a very detailed business plan.
The real question you need to answer though is, why are you selling a chunk of a profitable business? If it's just to get cash now at the expense of later revenue then take out a loan.
Next step is go talk to an accountant, because there's a lot more info needed than what you've listed here and it doesn't seem like you have any real plan at all.
Thank you so much for this detailed response! Regarding your question kinda answered it above, to get that next level of expansion I need someone with media contacts + enable to work FT on it.
There aren't really people out there who can just get a product in the media without an advertising/PR budget to go with it. Not without the last name Murdoch or Packer, anyway.
Really what you need is a business plan that includes advertising spend, what kind of salary you plan on taking, what invest you need and what the return on the investment is. What are the risks (the big one being someone stealing your idea and producing it for half the price), what kind of growth you can achieve, why you can grow it, etc. If you haven't got that figured out yet, don't bother approaching anyone yet.
Anyone who's going to do all your PR as well as pay your salary is going to need a detailed plan and probably 95% of the shares because they've taken on all the risk. That's the way it works.
how much of it becomes yours to keep?
WTF?!
You negotiate with your investors on what they want, be it part ownage of the company or a set return on their investment. Then you keep the rest.
https://www.youtube.com/@SharkTankGlobal
Let's say you have a company that turns over 300-400K, x% profit margin.
- What Margin, cause Margin is kinda the key part. lets say 20%
If you get investors:
- Investors need a reson to invest knowing they'll make a return on their money.
how much of it becomes working capital vs how much of it becomes yours to keep?
- it's all company money, you can pay it out however you choose, the point would be to get money to make more money.
Do you have to pay tax on it?
- Yes
What else needs to be considered?
- Lots, get an accountant, watch Shark tank, you'll pick it up.