Investors

[Entrepreneur]

Can anyone tell me what I'd expect from investors? How they are compensated for their investment? Will they own a part of my business if I get investors? Shares? How does it work exactly? Thanks!

[Baudtender]

Entrepreneur, meet entremanure...

Warning: what I'm about to say is by nature presumptious and
may have nothing at all to do with what your personal dream
involves. I speak, as usual, in general terms representing those
things I have seen throughout my ignoble career. If none of
the below applies to you, and I certainly don't imply that it does,
then kindly do as most other sentients here and ignore me.

I'll take the risk of playing the part of "turd in the punchbowl" if
it means you, or another reader might glean a bit of wisdom
before walking into a maelstrom.

I think the amount of ownership/control expected by investors
depends entirely on the nature and amount of the investment.
If it's your father giving you a $5000 short-term loan, it's one
thing, but significant capital funding a new startup is entirely a
different matter with different rules. Unless you are dealing with
a very naive investor, he's going to have accountants and lawyers
advising him and will be setting the ground rules in terms that
aren't very favorable to the non-investors. Not investing cash
makes you a non-investor, no matter what you think everything
else you are doing is worth.

The reality is that if all you are bringing to the table is a great
idea, meticulously thought out "can't fail" business plan, ambition,
enthusiasm, and demonstrable willingness to self-sacrifice all
hours in a given day, not to mention your family and/or social life,
you're questions should be reversed - can I expect any
ownership? Will I get any (even a single) share? How will
I be compensated and what will prevent the investors from
squeezing me out empty handed? The best thing most "all
ideas and hard work but no money" people get out of starting
up a new venture is the opportunity to create themselves a
job and perhaps make themselves indispensible in the process.
An idea with no money, no matter how good, is about as useful
as a world-class healthy lung with no oxygen. Big money, no
matter what you've heard or read, rarely pines for big risks. The
converse is rarely without exception.

Sorry to say, but I, and I'm betting most other folks on this board
who have some mileage in this industry, have all seen the starry
eyed "I've got a great opportunity to make us some big money"
fellow locate and negotiate a great location, oversee every
aspect of the design and build-out while being more niggardly
with the investors' money than their own, open and follow
through to a smash hit, only to get squeezed out with the same
empty pockets they arrived with. Sucks. That's reality.

Unless you have a rich and generous uncle, the typical money
guys consider the "idea" guy to be the very definition of that
"dime a dozen" club. The capital investors will typically have all,
if not as-good-as-all shares of ownership and control in return
for putting up the big money - which is, after all, in much shorter
supply than good hearted, hard-working folks with big dreams
and great ideas. Should I also mention that even if the investors
inherited their money rather than earned it, they'll consider
themselves smarter and sharper than you and will insist on
"fine-tuning" your perfect concept, in many uncomfortable ways,
beyond any semblence of the original concept. This may or may
not happen up front, but investors are notorious for wanting to
tinker when they get impatient for those big returns you
promised.

But, I dunno - you might find a fool and his money out there,
somewhere - I was one once... no, twice. But never again.
Damned few investors in the bar/club/restaurant business ever
recover their original investment, much less ever see a profit from
it. Most end up purchasing an expensive education for
themselves and may end up being consumed in a business they
really never wanted any part of except in a "silent" capacity, just
to get themselves out of it with some vain sense of recovery.

But, I wouldn't advise you to sell those thoughts. The best
strategy, of course, is to find a rich "uncle" or Daddy Warbucks
that is uncomfortable and guilty about their wealth and is
advertising an immediate need for some self-destructive
penitence. Lacking store-bought triple-dee's, or otherwise
uncommon and overwhelming tools of persuasion, you will
probably find this challenge to be amplified, and success rare.

I don't mean to stand on the balcony and pee on your parade...

If any of the above even remotely describes your position, all
is not lost. Get some really good legal representation as you
put together the deal and negotiate on the terms of an ironclad
employment contract, performance bonuses, and stock options.
With this strategy, if your idea is a honker, you have nothing to
lose than time and energy, but a lot to gain if it's a winner. And
you'll be much better off than the vast majority of managers who
are hired with none of these.

Beware the "easy" money.

Baudtender

[Entrepreneur]

Thank you for the advice! :-)