Yesterday someone handed me a few thousand bucks. It was a potential investor I had spoken too a couple of months ago, and yesterday out of no where they cut me a check. It was the weirdest feeling. I felt validated, optimistic, fearful, all at once. I loved it. For those of you who have received any type of funding for the first time from an outside source, did you feel the same?
What position, equity, loan, or other did you give the investor in return. Are you going through all the legal red tap to make sure everything is by the book and how complicated has that process been to start taking is money. One thing that has kept us from accepting small investments is the legal tape surrounding additional bookkeeping.
I recall hearing about some company that accepted tons of small investments, which made getting signatures at acquisition time a real pain. Can't remember what company though.
Any recommendations for good tutorials on the equity problem? I somehow find it very hard to get a good understanding of it, and most "found a business" books seem to avoid the issue, too.
Assuming zero knowledge... For example, what does it mean to own equity? If you own 10% of the company, I suppose it doesn't mean that you get 10% of it's earnings. I gues you would get 10% of dividends? But what if the company never decides to pay dividends? Since you only have 10%, there seems to be nothing you could do against it? Rather than pay dividends, the CEO holding 51% of the company could just decide to pay himself a salary of several million $?
Sorry if that sounds very stupid, but where does one ever learn about that kind of things as a unsuspecting citizen? Any pointers would be greatly appreciated!
I think the reason everyone avoids the issue is that it's impossible to give general advice. The amount of stock you should give to a new hire depends on how valuable he is, and how valuable the company is. The amount of stock given to the first hire could range from 1% to 50% or perhaps even more.
Most startups don't pay dividends. Even Microsoft barely does. Owning 10% of a technology startup basically means you get 10% of the proceeds if the company gets bought, or hold 10% of the now tradeable shares if it goes public.
Someone holding 51% could pay himself all the company's profits as salary only if the company hadn't taken substantial investment. Otherwise the investors would have protection against such abuses as part of the deal terms, and the employees would thus be protected too.
Congrats, that is a big step. I can remember the first time we received investment with nothing but fondness. It like the first time you have sex, you'll never forget it...
