IMPORTANT: Should we go ahead with this Equity offer

Hi Guys,

A quick introduction: my name is Toby and am the co-founder of a project that helps people understand an apartment location before buying or renting an apartment to relocate to.

We are based out of a small country in Europe and we were approached by a big corporation in Africa (Nigeria) to launch the platform in the country and they will invest and run it there.

Now to the problem and why we posted this here:

  • They are asking for a 70% of the company and with the way we see it, it will be impossible for any VC to invest once they see a 70% on the term-sheet. I know what you are thinking, why do we need investor ? Simply because we want to take this global which will eventually need a traditional VC.

  • They are not investing like a normal investor does - “Take this amount for this equity” scenario. They are offering it more like “Tell me what you need and we will give the money”

So to the Question: Should we take this or NOT and what do you suggest ?

Based on the information you’ve provided I would say a categorical No (if this is something you believe in). At 70% equity gone at this first hurdle, it’s clear that the upside for the brains (you guys) have dramatically reduced! I’m sure you know first hand that startups are hard, so what will quickly happen as soon you give the investors 70% of a firm, is that the struggle is suddenly not worth it anymore. You might be fine with that…but what about the other 3 founders?

I think those investors are not great investors anyway, because if they were savvy enough they will realise that the downside to owning too much equity at this stage is actually detrimental to the success of the whole project.

3 reasons I would advise otherwise are:

  1. if you don’t believe in this anymore and would rather take the money and do something else soon, then Yes.
  2. If you would rather take it so that you can succeed at your ‘project’ and have a ‘win’ under your belt, then I would say Yes.
  3. If you know categorically that without traditional VCs, the original investors can provide the needed funding and support to go all the way i.e still own roughly the same % equity, then Yes.
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Better still (if you want to go with @PapaOlabode’s option 3), register a subsidiary of your business in Nigeria and give them the option of owning 70% of that. Money received goes to that subsidiary and solely into Nigerian operations. That leaves you free to explore the rest of the world on your own, plus the benefit of a ‘win’ under your belt.

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Thanks XO.

Appreciate

do a background check on the company if you have not.

All excellent opinions given. Just to add another based on the sentence above. Sounds to me like there isnt any fixed amount they will bring even if it is on a request basis, just the assurance that “they’ve got you covered”. If so, then I suggest you insist on a specific amount for equity, or worst case some baseline cash that must be accessible to you upfront and the rest based on request.

Else what happens when you feel strongly about executing something that requires cash and they don’t? Or you want to do something and they offer you a cheaper alternative that won’t quite deliver on the objective?

If this won’t fly, then you may need to consider some kind of vesting on their part (no suggestions here).

Good luck with your endeavour.

Its a NO!

You need professional investors who understand how a startup works not just a group of guys with money.

No professional investor will ask you for 70%.
Since you have traction and are looking for expansion capital, I’d recommend Kima Ventures. Reach out to them

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Don’t work with terrible investors. Your investors don’t know shit. And you can never reverse the situation, once you are in. A No today. A No tomorrow. A No when Jesus returns.

70% at seed stage is a very bad deal and demotivating for the founders. Why build when you could just walk away with the cash. That the investors didn’t know this says a lot about them than about you. They are trying to grab the entire pie not knowing they are shooting themselves in the foot.

"Come to us anytime you need money ". Okay bro, that’s bullshit. In the wonderful world of Eric Cartman(of Southpark), that’s bullcrap. Another reason they don’t know what they are talking about. How about you suddenly need a billion? Let me tell you what is going to happen. After second round of cash and things don’t go fairly great, they will leave you in the sun to dry.

Money rules everything. But the best kind of cash will always be be smart money. It’s really hard to come around these people but the best guys to raise money from, are fellas are who are in this business. Fellas who invest in tech startups or actually run one. They know and understand. If you can, these are fellas you should be reaching out to.

The highest anyone should give away at seed stage, in my opinion, depending on the cash demand of the venture, is 30%.

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This is my opinion. A big corporation is expected to not make such a stupid proposal. I say stupid because I can’t wrap my head around any bright investor who’d want 70 percent of a company that has absolutely no execution in the region where his equity covers, while simultaneously de-motivating it’s employees. Maybe I’m wrong, but I refuse to even give this much thought. This is what I think -----> 419 Scams Now Target Startups Too | by Inside Mailburn | Medium

I believe so too, because they most probably don’t know shit because they actually are not investors.

… But what do I know?

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That is an employment offer, not investment.

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Here’s what you can do if you need the money.

Give them a white label version of your code for a fixed cost. 100% of it. You will not support it after 3 months and will definitely add no more features afterwards.

You can then use the money to focus your startup on Europe and Africa is always going to be available for you.

Of course, this is not legal advice. You should talk to a lawyer and I’d recommend you speak to @Odunoluwa or have her chime in.

in summary, this is a BAD deal as it is . Like @Obi_Ik says, It is an employment offer with no salary.

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The guys are right no… but if you want go ahead do what @xulobi said…register a subsidiry in Nigeria and give them 70%.

Anyone asking for 70% of for company, irrespective of the money in question has neither yours or the company’s interest at heart.

If you take it, you probably won’t be getting any follow-up offers.

You may want to consider your options and future plans carefully before making a decision.

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There are a lot of incomplete details here, its easy to say No and lose out on a potential lucrative partnership, I think @OoTheNigerian has a very good advice.

  1. Is this 70% of the European company , which is registered ? or 70% of the Nigerian company, which is yet to be registered or 70% of what they do with the software in Nigeria, once they setup a company in Nigeria.

  2. Who is running the operation in Nigeria? Are you relocating?

  3. If all you have right now is just the software, and they are looking at rolling it out in Nigeria and building a company around it, and you guys are just providing support, then a 30% royalty deal is not a bad deal at all for just the Nigerian market.

  4. A lot of indian software companies in Nigeria that make significant “real money” are based on similar structures of royalties. The revenues most of them make surpasses what the acclaimed startups in Nigeria make today or raise through VC.

I think if you can answer the questions I asked above, people would be able to guide you better.

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  1. They will be the one running the operation in Nigeria
  2. We will be providing support and we get a 30% royalty deal
  3. 70% of the registered company in Nigeria.
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Then its a great deal. You should take it.

Make sure to negotiate recurring support fees that is different from the royalties though. You need someone that is familiar with enterprise software licensing deals to help with this. Cheers

Hello Toby!

One quick question, with 70% ownership, do they have the power to kick you out of the company if for example they do not need your services anymore?

Also, is it a live project and do you have paying customers?

nope. they don’t have the power to kick us out of the company. The 70% will only be issues if ONLY they reach the milestones in the termsheet and if they don’t we go on a 50% equal deal.

We’ve completed the project and we currently at a pre-revenue

Like a year back, I was in this situation… If you really need the money take it… The 70percent might just be a tactics to make their own end safe… Free money is hard to come by these days… Please take it…

At a price of 70%, I wouldn’t be in a hurry to call that free.

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