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What investors returns should be ?

JachguJachgu subscriber Posts: 1
edited July 2006 in Startup Funding
For friends and family members who put capital in.. What would be a good rate to offer them on the investment?


  • robertjrobertj subscriber Posts: 0 Member
    We advise clients to treat their friends and family the same as they would other investors.
    Generally, investors want a return commensurate with the risk - as they perceive it. If this is a loan you sould consider
    1. Some states have usury laws that limit the amount of interest you can pay.
    2. If the loan is completely unsecured - the risk to the lender is higher and therefore should produce a higher interest rate.
    3. Time is a risk factor - the longer you will take to pay back the loan, the greater the risk.
    Investors who receive equity usually want to know how they will get their return.Some ways include an IPO/merger/sale/or stock repurchase -to name a few.
    Depending upon the specifics of your situation and the desires of your investor/lender, you have several approaches to a equitable and mutually agreeable "deal".
    Hope this helps
    Robert Johnson
  • PeoplePawnPeoplePawn subscriber Posts: 0
    I was in the same position you were back in February of this year. After discussions with my attorney we decided upon a dual strategy that would allow me to focus on both debt investors (family and friends that believed in my business plan and my ability to execute) as well as equity investors (external individuals looking for a stock position over a 3/5 year time line). I ended up offering my debt investors a Bridge Note paying 8% annually with as additional 20% Warrant (the ability to purchase a limited amount of company stock in the future, based upon 20% of their initial investment). I was able to secure approx: $100K in debt and am currently seeking an additional $350K from equity investors. I feel confident that a small group of equity investors whom I am currently negotiating with may fulfill my needs so that I can launch. The one thing that you need to keep in mind with regards to a funding strategy like mine is the legal costs of executing the debt strategy vs the equity. Good luck.
  • mtradesmtrades subscriber Posts: 0
    The best a startup can do is offer revenue sharing to family, friends and investors. This way they know that they`ll get a cut in your profits as they come in. I had listed my business with GoBig.com and www.breadstreet.com and I had investors that asked to be paid a % of monthly revenues. I think this works as you do not have to worry about fixed loan payments if your business is not making money.
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