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Dragons Dens, Venture Capitalists, Loans from BoMAD (Bank of Mum & Dad): alternative sources of funds for businesses are increasing in popularity.
Developing your business can be tricky at the best of times and so any offer of alternative funding to launch a new project or allow for the business to reach new markets is going to be well received. Whether you are investing or seeking investment; the key negotiations are going to concern the following:
- Purpose - Unless the investor is extremely charitable they are not going to be impressed if their investment is used to pay for your next holiday. A clear project/business plan is useful in fleshing out the required detail and possibly 'ring - fencing' funds.
- Security - Investors will need some form of protection and will often ask for shares in the company and/or loan notes. They will also want to ensure terms preventing their shares becoming worthless (e.g. voluntarily winding up the company) are in place
- Exit Strategy - each party needs to be clear about their objectives. If the plan is to develop the company for sale there will need to be clear milestones and provisions to trigger sale when the right offer is received. If you plan to run the business until you retire, you may want a different set of payment or repayment provisions contained in the agreement.
- Control - some investors will merely want a copy of the annual accounts and access to meetings whereas other's will want a seat on the board of directors and true management input.
The above is far from an exhaustive list. Investing in a company is risky but the rewards will reflect this. As with any commercial agreement ensuring that negotiations are properly reflected in the documentation is key to the success of the venture. Whether an investment results in a lucrative business sale or discovering an idea isn't commercially viable, so long as the agreement is even handed each party should be able to walk away satisfied either back to the drawing board or off on holiday.
