Download Selling shares to finance the company startup

Selling shares to finance the
company startup
• Now come a most critical question: Can we
finance the company by selling shares
without loosing control?
• It is often accepted that the GeneralManager
should retain 2/3 of the company in the first
round of financing.
• Will the company generate so much profit
that 1/3 is enough to give enough return to
the investor putting up the capital needed?
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Let’s have a look
on
our
case
LMKs method step 7 Investor
Return for investor
Accumulated loss
Sum Assets
0
0
0
0
Liabilities
0
Short term bank loan, percent. of sales after 3yrs 0,05
short term misch.tax credit
0
Accounts payable, fixed costs, days
30
Accounts payable, product production costs,days 30
Sum short term liabilities
0
0
0
Long term risk loan from Aunt Maggie
0
Accumulated profit
0
0
0
Capital needed, accumulated
0
580
756
0
0
0
50
58
3
111
0
100
0
0
545
1 354
1 718
0
0
0
100
121
12
233
0
100
0
0
1 385
1 354
2 071
0
0
0
150
178
37
365
0
100
5
0
1 600
1 354
2 496
0
0
270
200
245
74
789
0
100
1 588
0
19
1 354
2 886
0
0
377
300
306
99
1 082
0
100
4 254
0
-2 551
Profit before tax
0
-580
-774
5
1 583
2 667
25 %
136
136
346
482
400
883
400
1 283
400
1 683
0
0
0
0
2
7
528
2 110
889
3 555
Imaginary interest on capital needed, percent.
Accumulated
1/3 of profit
will cover a principal of xx, at rate
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25 %
LMKs method step 7 Investor
Many ways to look at a company
• In our case we see that the investor after year 4 has put
something less than 3 mill into the company, including the
missing 25% interest.
• In year5 (and we presume the following years) 1/3 of the
profit (we disregard the tax here) will provide interest at
25% pa for more than 3 mill.
• So investor can get aprox 25% on his investment.( if plan
is as solid as The Federal Reserve)
• Is this enough??
• Investor may be looking for 10x input in 3 years !
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LMKs method step 7 Investor
Value of our case
Profit before tax
0
-580
-774
5
1 583
2 667
• We can calculate the value of this money stream,
assuming the last year to continue indefinitely, or a
fixed number of years, with a given rate of return
• Or we can calculate the value based on P/E=4 (25% pa
profit)
• According to this the company is worth 10,7 mill
which is far from the investors dream of 1,6x3x10=48
mill.
• Does the investor believe in the GeneralManager’s
capabilities for building a profitable business?
08.08.00
LMKs method step 7 Investor
Completed plan: Change “Capital
needed” to “Common stock” and
“Additional paid in capital”, as
well as fill in “Extra cash”
• This plan would be
regarded as marginal.
• Too low sums for
professional investors
• Not high enough
growth potential
• Try again!
08.08.00
LMKs method step 7 Investor