hi I’m Evan Carmichael welcome to an edition of ask Evan today we’re going to
edition of ask Evan today we’re going to
edition of ask Evan today we’re going to answer a question from a newsletter
answer a question from a newsletter
answer a question from a newsletter reader Jay who’s trying to raise money
reader Jay who’s trying to raise money
reader Jay who’s trying to raise money for his business and wanted some advice
for his business and wanted some advice
for his business and wanted some advice on how to structure it so it’s a long
on how to structure it so it’s a long
on how to structure it so it’s a long email so I’ll just kind of summarize it
email so I’ll just kind of summarize it
email so I’ll just kind of summarize it he has a new idea he has investors lined
he has a new idea he has investors lined
he has a new idea he has investors lined up and they’re waiting for him to get
up and they’re waiting for him to get
up and they’re waiting for him to get back to them with a proposal of you know
back to them with a proposal of you know
back to them with a proposal of you know what to do he doesn’t want to give up
what to do he doesn’t want to give up
what to do he doesn’t want to give up equity and he doesn’t want to hire a
equity and he doesn’t want to hire a
equity and he doesn’t want to hire a lawyer to structure everything I wanted
lawyer to structure everything I wanted
lawyer to structure everything I wanted my advice and what to do so thanks for
my advice and what to do so thanks for
my advice and what to do so thanks for the question Jay I think it’s a
the question Jay I think it’s a
the question Jay I think it’s a challenge a lot of entrepreneurs go
challenge a lot of entrepreneurs go
challenge a lot of entrepreneurs go through is how to structure deals to
through is how to structure deals to
through is how to structure deals to fund their business the three most
fund their business the three most
fund their business the three most common ways the first is to give up
common ways the first is to give up
common ways the first is to give up equity so you give a percentage of your
equity so you give a percentage of your
equity so you give a percentage of your business or the cash injection and
business or the cash injection and
business or the cash injection and sounds like that’s not what you want to
sounds like that’s not what you want to
sounds like that’s not what you want to do so that’s fine the second common way
do so that’s fine the second common way
do so that’s fine the second common way is just a straight loan so they give you
is just a straight loan so they give you
is just a straight loan so they give you X amount of dollars and you agree to pay
X amount of dollars and you agree to pay
X amount of dollars and you agree to pay it back over a period of time and then
it back over a period of time and then
it back over a period of time and then the third most common way is to have
the third most common way is to have
the third most common way is to have some kind of hybrid so that they have a
some kind of hybrid so that they have a
some kind of hybrid so that they have a loan where they’re making a certain
loan where they’re making a certain
loan where they’re making a certain amount of money on a ongoing basis but
amount of money on a ongoing basis but
amount of money on a ongoing basis but it’s convertible into shares so again
it’s convertible into shares so again
it’s convertible into shares so again you’re giving up shares at some point in
you’re giving up shares at some point in
you’re giving up shares at some point in time some other companies will do a
time some other companies will do a
time some other companies will do a percentage of sales or percentage of the
percentage of sales or percentage of the
percentage of sales or percentage of the profit it’s always better if you can to
profit it’s always better if you can to
profit it’s always better if you can to do it on on the profit side of things
do it on on the profit side of things
do it on on the profit side of things just because if you do in top-line you
just because if you do in top-line you
just because if you do in top-line you could end up paying off your investors
could end up paying off your investors
could end up paying off your investors and then not having any money left for
and then not having any money left for
and then not having any money left for yourself at the end of the day so that’s
yourself at the end of the day so that’s
yourself at the end of the day so that’s not going to help a ongoing sustainable
not going to help a ongoing sustainable
not going to help a ongoing sustainable business there’s a million ways to slice
business there’s a million ways to slice
business there’s a million ways to slice it you have to think what’s in your own
it you have to think what’s in your own
it you have to think what’s in your own best interest when you’re looking at
best interest when you’re looking at
best interest when you’re looking at these investors are the people who you
these investors are the people who you
these investors are the people who you want to have on side with you for a long
want to have on side with you for a long
want to have on side with you for a long period of time if you see them as as
period of time if you see them as as
period of time if you see them as as just giving you money then you
just giving you money then you
just giving you money then you probably don’t want them to be a part of
probably don’t want them to be a part of
probably don’t want them to be a part of your equity and ownership structure so a
your equity and ownership structure so a
your equity and ownership structure so a loan would be better or some kind of
loan would be better or some kind of
loan would be better or some kind of profit-sharing which you have some kind
profit-sharing which you have some kind
profit-sharing which you have some kind of clause we will apply them out at a
of clause we will apply them out at a
of clause we will apply them out at a predetermined price that’s always a
predetermined price that’s always a
predetermined price that’s always a great way to kind of get some money at
great way to kind of get some money at
great way to kind of get some money at the start without giving up too much of
the start without giving up too much of
the start without giving up too much of the farm and also being stuck with bad
the farm and also being stuck with bad
the farm and also being stuck with bad investors but ideally you can try to
investors but ideally you can try to
investors but ideally you can try to find people who can also help you out
find people who can also help you out
find people who can also help you out longer term and not just be a source of
longer term and not just be a source of
longer term and not just be a source of capital but can be a source of
capital but can be a source of
capital but can be a source of connections and customers and help you
connections and customers and help you
connections and customers and help you find partners and get you into the media
find partners and get you into the media
find partners and get you into the media and they start thinking about your
and they start thinking about your
and they start thinking about your business as a way for them to help you
business as a way for them to help you
business as a way for them to help you know contribute and not just give me
know contribute and not just give me
know contribute and not just give me money and in that sense it may be worth
money and in that sense it may be worth
money and in that sense it may be worth going out and giving up a piece of the
going out and giving up a piece of the
going out and giving up a piece of the business on the equity side even if it’s
business on the equity side even if it’s
business on the equity side even if it’s a small piece just to make sure that
a small piece just to make sure that
a small piece just to make sure that they’re you know always having your best
they’re you know always having your best
they’re you know always having your best interests in mind so those are the three
interests in mind so those are the three
interests in mind so those are the three most common ways if you want to do that
most common ways if you want to do that
most common ways if you want to do that kind of revenue share like you talked
kind of revenue share like you talked
kind of revenue share like you talked about on your email I would try to do it
about on your email I would try to do it
about on your email I would try to do it on a profit sharing side instead of the
on a profit sharing side instead of the
on a profit sharing side instead of the revenue so that you still are you know
revenue so that you still are you know
revenue so that you still are you know making sure you’re making proper for
making sure you’re making proper for
making sure you’re making proper for your business
your business
your business I would probably though talk to a lawyer
I would probably though talk to a lawyer
I would probably though talk to a lawyer it’s dangerous to structure these kinds
it’s dangerous to structure these kinds
it’s dangerous to structure these kinds of things without having a lawyer help
of things without having a lawyer help
of things without having a lawyer help you go through the process the more you
you go through the process the more you
you go through the process the more you know what you want to do so hopefully
know what you want to do so hopefully
know what you want to do so hopefully this video helps give you some ideas the
this video helps give you some ideas the
this video helps give you some ideas the closer you get to what you want to do
closer you get to what you want to do
closer you get to what you want to do the less time you have to spend with a
the less time you have to spend with a
the less time you have to spend with a lawyer if you go to Laura and say here’s
lawyer if you go to Laura and say here’s
lawyer if you go to Laura and say here’s exactly how I want to structure it can
exactly how I want to structure it can
exactly how I want to structure it can you help me do it you won’t pay as many
you help me do it you won’t pay as many
you help me do it you won’t pay as many legal fees as I’m not quite sure what I
legal fees as I’m not quite sure what I
legal fees as I’m not quite sure what I want to do can you help me then you know
want to do can you help me then you know
want to do can you help me then you know the billable hours start to add up but I
the billable hours start to add up but I
the billable hours start to add up but I definitely talk to the lawyer it also
definitely talk to the lawyer it also
definitely talk to the lawyer it also makes you look more professional a lot
makes you look more professional a lot
makes you look more professional a lot of the companies that we helped finance
of the companies that we helped finance
of the companies that we helped finance when I was in the venture capital
when I was in the venture capital
when I was in the venture capital business had really really messy
business had really really messy
business had really really messy shareholder agreements and it made it
shareholder agreements and it made it
shareholder agreements and it made it really difficult to be able to raise
really difficult to be able to raise
really difficult to be able to raise additional capital because it didn’t do
additional capital because it didn’t do
additional capital because it didn’t do a property the first time so if you see
a property the first time so if you see
a property the first time so if you see this is something that’s gonna be bigger
this is something that’s gonna be bigger
this is something that’s gonna be bigger down the line and be able to you know go
down the line and be able to you know go
down the line and be able to you know go and get more investors you need to make
and get more investors you need to make
and get more investors you need to make a lot of money with it makes sense to be
a lot of money with it makes sense to be
a lot of money with it makes sense to be able to do it right from the start so
able to do it right from the start so
able to do it right from the start so that when future investors are
that when future investors are
that when future investors are interested they see that it’s kind of
interested they see that it’s kind of
interested they see that it’s kind of been done properly and they’re not going
been done properly and they’re not going
been done properly and they’re not going to waste time fixing old mistakes so
to waste time fixing old mistakes so
to waste time fixing old mistakes so hopefully that helps if you guys liked
hopefully that helps if you guys liked
hopefully that helps if you guys liked the video please give it a thumbs up
the video please give it a thumbs up
the video please give it a thumbs up that makes me want to do more of these
that makes me want to do more of these
that makes me want to do more of these videos for you guys and if you have a
videos for you guys and if you have a
videos for you guys and if you have a question about raising capital or or
question about raising capital or or
question about raising capital or or comment on this video or another
comment on this video or another
comment on this video or another question about your your own business if
question about your your own business if
question about your your own business if you leave in comments below I always
you leave in comments below I always
you leave in comments below I always read those to try to respond as many as
read those to try to respond as many as
read those to try to respond as many as I can so thank you and we’ll see you on
I can so thank you and we’ll see you on
I can so thank you and we’ll see you on the next episode
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