Great topic! Once in a negotiation, another party with lots of business experience wanted to value our company at what had been invested to date. I was trying to argue for a valuation of 5*Revenue @ 6 months from now based on a conservative assumption of customer acquisition - still a low value but 10X better and I thought we could come to agreement on some number of customers. An advisor later asked "Would you invest in a new company with Jeff Bezos and Elon Musk as partners if it had $0 invested to date? How much?" It was a good analogy relating to the value of team and other factors.
@@FeeltheBoot thank you! I actually have a few questions. One is about the contract with investors. My understanding is that I need to have a contract already drawn up, to present to investors, even though it will likely be modified. Is that the case? I had my business manager draft one.
@@FeeltheBoot, also, can I specify which products and services the investor will see a profit from? Example: only my online products & services, not the live events and travel study. Or only adults but not the kids programs. I heard I can specify that but if I can't, I'll need to start a new business (later) for those other products. I want to be entirely honest with investors.
@@NicoleTeacher no, not at all. If you have a lead investor who set the deal terms or you have strong feelings about the terms you want, you can present a "term sheet" to the potential investors, but that would be it. The document just describes the general structure of the deal. If they accept, or you come to a negotiated compromise on terms, then you move to a contract. In many cases, you won't have a set of terms in advance and you will work that out in the course of meeting with the prospective investor.
@@NicoleTeacher you should absolutely be clear and honest with the investors. If they think that they will have ownership in all the derivative product lines, and you create a new company of which they have no part, you should expect legal action. Because an equity investor owns a fraction of the company, you can't easily break out which product lines they get to benefit from. You would need to do those things in completely new businesses. Again, setting appropriate expectations is critical. This kind of structure would also be off-putting to me as an investor in almost all cases.
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