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Thread: A good structure to pay back investors..

  1. #1
    Join Date
    Dec 2010
    Posts
    7

    A good structure to pay back investors..

    I am located in Iowa, I have made a business plan and I have a great excel sheet explaining my monthly income proposal. However, I have a few silent investors(mostly family) that want to invest. Does anyone have any information on a good investor payback structure. I have head about a 15% of profit payback until investment is payed in full. But why would they want to invest if all they are getting is there money back? and a risk of losing it all? Any information is greatly appreciated.
    Cheers!

    Brew Master Alderin
    brewwithlittlecash.blogspot.com

  2. #2
    Join Date
    Feb 2007
    Posts
    81

    Equity

    Although you may be "paying your investors back" with dividends or distributions at the end of each year, ordinarily they would have shares or an ownership in the company that would always remain (and hopefully grow in value) even after they had recouped their original investment via dividends. Otherwise, perhaps you're talking about really just getting loans from folks (in which case they are not investors) and that's a different scenario.

    Taylor Smack
    Blue Mountain Brewery
    Afton, VA

  3. #3
    Join Date
    Dec 2010
    Posts
    7
    So maybe a good structure could be something like giving out 15 percent of my profit until the investment is paid back and then like a half to 1 percent of all my profit?
    Cheers!

    Brew Master Alderin
    brewwithlittlecash.blogspot.com

  4. #4
    Join Date
    May 2010
    Location
    Denver, CO
    Posts
    100
    You need to look up how debt vs equity ownership works.

    If you sell debt they get a fixed return no matter what your cash flow looks like and you secure the debt with assets. When the debt is paid with interest you go your separate ways. If the company goes bust they get to sell the assets to pay back as much of the remaining debt as possible. Most people will require more than 100% of the debt be secured by assets for a new startup to basically reduce any risk of losing money but they also get a lower investment return potential.

    If you sell equity they own a percentage of the company and get a corresponding percentage of the profits but also take the risk of losing money if the company goes bust. You have to lay out ahead of time what you are selling each percentage of the company for and it is up to the investor to decide if he thinks what you are offering is a good investment.

    Just remember that equity investors own a part of the company and will get paid forever until you or someone else buys out their percentage of the company. If you are successful they will demand a high price to buy them out. If you can get it debt is much cheaper in the long term but requires assets to loan against.

  5. #5
    Join Date
    Jun 2006
    Location
    San Antonio, TX
    Posts
    132
    Quote Originally Posted by brewerynbeef
    So maybe a good structure could be something like giving out 15 percent of my profit until the investment is paid back and then like a half to 1 percent of all my profit?
    No offense, but I can't forsee many folks jumping to invest money in your brewery with that kind of structure.

    Breweries are a relatively high-risk venture, and my personal opinion is the folks who invest their money in these ventures should be looking for a 30% IRR, at a minimum.

    Giving out 15% of your profit til it's paid back could be a LONG time, and half to 1% isn't likely to be very much unless you turn into the next Dogfish Head. Proposing half to 1 % is a good way to get punched in the face.

    I have always approached things from a straight equity perspective. You own X% of the company, you get X% of the dividends. Plain and simple.

    Now there are other structures out there, if you want an accelerated payback structure (most useful in instances where the people putting up the bulk of the money are not getting the bulk of the ownership) - think more along the lines of 75-100% of all profits until they are paid off, then it converts to their ownership %.

    Hope this helps.

    Scott
    Scott Metzger
    Freetail Brewing Co.
    San Antonio, TX

  6. #6
    Join Date
    Dec 2009
    Posts
    173
    Quote Originally Posted by Butcher Scott
    Proposing half to 1 % is a good way to get punched in the face.

    Hilarious. Also very true.

  7. #7
    Join Date
    Mar 2008
    Posts
    123
    Quote Originally Posted by Butcher Scott
    Now there are other structures out there, if you want an accelerated payback structure (most useful in instances where the people putting up the bulk of the money are not getting the bulk of the ownership) - think more along the lines of 75-100% of all profits until they are paid off, then it converts to their ownership %.
    This is the scenario that I've heard of and made the most sense to me.
    The founders maintained 60% ownership of the company from their financial contributions and sweat equity.
    The investors (the other 40%), were paid out first. Profits were paid out 75/25 investors/founders until the investors got an 8% annual ROI.
    Afterwards, the profits went to a 1:1 payout per ownership (founders got their 60% share of profits).

  8. #8
    Join Date
    Aug 2010
    Posts
    37
    Have you talked to your local banks? And if so what was the answer? If they said no, why? Would they say yes if some one like a government agency picked up some of the loan amount? I recommend that you talk with your county development group. I was able to secure a good loan from them that was backed by the FDA for a very low interest rate, and another loan from The Upper Explorer Land Regional Planning Commission that is also government backed. With those 2 loans being government backed the local bank was more then willing to fund the rest. Here are some of my local contacts that you can talk to and they can point you in the right direction of who to talk to in your county. Also I am posting from Iowa also so these avenues of finance should also be open to you.

    Darla Keltchen
    Clayton County Development Group
    Telephone: (563)245-2201
    Toll-free: (800)488-7572

    Upper Explorer Land Regional Planning Commission
    Bill Ziegler
    Economic Development/RLF - 563-864-7551 Ext: 209

    Also talk with your local Chamber of Commerce or Main Street organization. Some towns here in Iowas have some small loans available or know of ways to help you get going.

    These are just my experiences of doing everything I can do avoid giving up shares or seeking investors. To get any of these government backed loans you will have to do a ton of paper work and jump through some hoops but in my opinion it was 100% worth it for my business.
    Last edited by Fennellys; 02-07-2011 at 10:25 PM.

  9. #9
    Join Date
    Oct 2006
    Location
    Madison, WI
    Posts
    43
    I'm starting a microbrewery and raised just over 50K so far though a bond offering, or "debenture". It's essentially taking loans from people. I could only offer this arrangement to people who are residents of my state, but I made separate "personal loan agreements" with out of state folks. I am paying a flat 8% per year, a minimum of $500 and maximum of $5,000 investments. I will pay interest only for 5 years and then they can request all their $ plus interest back. I have the option of paying them back at anytime. Interest is not prorated = if I borrow money for 1 yr + 1 day I owe them for two years interest. It has done well for me thus far.
    Page Buchanan
    House of Brews
    Madison, WI

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