I think he is better served by hiring his own lawyer to advise him if he is given a contract drawn up the investor.
TO_GOF
joined 10 months ago
As others have answered, yes. The investor only makes money when the business does and what I haven’t seen anyone mention is, depending on how the business is structured, partnership/llc/s-corp/c-corp the investor can share in liability should the company get sued or the company is forced to declare bankruptcy.
There’s a lot to it and it all depends on how the company is structured and operated and even how the ownership is setup assuming they have a lawyer draw up the contract.
Going merely off of what you stated:
They want an equity stake in your company, you would own 95% and they would own 5%. They have also valued your company at $600,000. If you take their money you wouldn’t owe them anything but they would be part owner of your company though you would retain full control.
Do you believe your company is worth $600,000? Do you need the $30,000? If you feel your company isn’t worth $600,000 then this might be a good deal. If you need the $30,000 to help you expand then this might be a good deal.
If your company is worth more than $600,000 then it’s probably a bad deal and if you do not need the $30,000 for any reason then it is a bad deal.
Finance, accounting, heck even economics are excellent degrees to pursue and will all aid you in business.
You mentioned grading well you might not ever use calculus or linear algebra in grading but a math degree might just come in handy depending on how big of a project you end up undertaking.
One of the biggest mistakes entrepreneurs make is they under sell themselves.
Your wife might be right here.
I’d tell myself to do what I did, which is to say I stated a business in a field I enjoyed.
Next I would tell myself that even though I hate college and do not want to be there, I should slow down and take to easy. Don’t try to get it over with quicker by taking more than a full load of courses each quarter as well as attending school in the summers. I would explain that you will burn yourself out by trying to go to school full time and work full time and that you will kill your entrepreneurial spirit.
Finally I would tell myself that the key to a successful business is stubborn tenacity in the face of all adversity. No matter what happens never give up and as soon as you can, hire people to help, even if those people do menial clerical tasks so that you can focus on what is important. And for gosh sakes if you have family members who might be willing to help you a little, let them freaking help you.
Usually, yes.
However there could be contingencies written into a contract which could require him to buy the stake back. That’s why anyone selling a stake in their business needs to have a lawyer review any contract they are presented with.