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Business Venture

Discussion in 'Business & Startup Investing' started by rejoice, 5th Apr, 2007.

  1. rejoice

    rejoice Member

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    Location:
    Sydney
    I have a business plan that I plan to launch very soon and am meeting with some business owners to get things under way. My question is...

    What ideas have people got about how to do this properly?

    I understand there are many ways to do this such as:
    - Silent Partner
    - Active Partner
    - Loan Scenario

    So all I ask is for some constructive input as I understand that structure wise companies and trusts will be involved, but am looking to get some advice...
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
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    I guess one question is "how is it to be funded?" A related but distinct question is how is the business to be structured?

    Businesses can operate as:

    1) sole traders (i.e. you);
    2) partnerships (i.e. you plus one or more);
    3) company (i.e. you perhaps with others own the shares and are a director, the company is treated at law like a another "person" separate from you);
    4) a trust (i.e. you or a company runs the business as trustee for various beneficiaries whose entitlements can be fixed or discretionary); or
    5) an unincorporated joint venture between partners, companies or trusts.

    Partnerships can be limited partnerships where one partner basically provides money only and is not active in the business and has limited liability compared with the general partner. (That's the structure often used for private equity/venture capital investments in the US and we do have a relatively new "venture capital limited partnership" structure here in Australia...but I suspect that's not what you're looking for.)

    You can fund your business with debt or equity. People who lend you money may or may not require security. Debt can be injected using what's called "convertible notes" i.e. it's legally a loan but they have the option to convert into shares i.e. ownership interests rather than be a lender.

    The potential investors/business "partners" you're approaching will want to know that you've got some "skin in the game", i.e. that you are putting substantial amounts of $ into the venture too. You should also have an idea of what you're prepared to give in order to get the funding. I.e. how much of the business are you prepared to give away...

    Just some initial thoughts.

    Cheers
    N.
     
  3. rejoice

    rejoice Member

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    Thankyou very much for your reply. The structure I plan to have is as follows:

    Unit trust with a company for the trustee
    Another trust to hold the unit with an attached company to cap tax at 30%

    I have written the business plan and developed the business model and have no 'skin' as such to invest apart from my time, knowledge, and enthusiasm. I am looking for creative ways to fund the project and am in negotiation with other business owners and investors of how this will be approached.

    Upon knowing this, do your thoughts change?
     
  4. Nigel Ward

    Nigel Ward Team InvestEd

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    Not really. You'll just need to accept that the pool of potential backers is likely to be much smaller. You may have to start with the usual 3 F's i.e. Founder/Family/Friends (less you though by the sound).

    You'll perhaps also need to accept that you'll have to give away a much greater proportion of the business if you've got no cash invested.

    Also you should make sure you sign any people you pitch to up to a confidentiality non-disclosure agreement (commonly called an "NDA").

    Good luck with it!

    cheers
    N.
     
  5. rejoice

    rejoice Member

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    I'm not taking the mickey but was wondering why I would have to give most of my business away?
     
  6. Nigel Ward

    Nigel Ward Team InvestEd

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    I suppose the blunt answer would be something along the lines of "because you've not got the money to convert a mere idea into a real business".

    Not trying to be rude or abrupt...but that's I suspect the response you'd get from most equity sponsors.

    There's millions of people out there with great ideas, but very few of the ideas actually convert to valuable businesses or products. Mere ideas or concepts without more have no value. (I accept that last statement is open to much philosophical debate... i.e. nothings' as powerful as a good idea whose time has come... but I'm talking practical liquidity events e.g. IPO/trade sale here).

    Again though rejoice, I'd be pleased to hear you've been wildly successful. But I just want to temper your enthusiasm with some realistic parameters.

    Again, good luck with it!

    cheers
    N.
     
  7. rejoice

    rejoice Member

    Joined:
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    Location:
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    Thanks for your input but I must now say I will disregard that last comment as with anything there are creative ways to fund deals, whatever they may be.

    I was also looking for constructive input to accompany my thoughts and brainstorm ideas that I might not be aware of.

    I will keep you posted and let you know how things are going. I thankyou for your well wishes... Have a great Easter and be letting you all know soon.