When I tell people about investor financing, and how usually investors will stick with you for about five years, sometimes I get a panicky question like, "Art, so what happens after five years and then the investors want out? What happens at that point?"
The answer is simple: At that point in five years, what happens is, you can either sell the company and pay them off (and pay yourself off and go retire in the Bahamas or something) or you could get the thing appraised and give appropriate share of the value of the company.
I mean think about it: The company is going to be free and clear, so if you had to borrow on it or whatever, youd have no trouble buying out the investors. In my case -- and you don't have to do this, but this is what I always do -- what I normally do is give their money back.
If the investor put up $1 million, at the end of five years or during the time theyre getting more return than they ever got before, theyre getting more growth, and theyre also getting comparable risk.
In other words, at the end of five years, we give them $1 million back (or whatever they put in) and then we give them a fat percentage of the profits of the growth of the business -- which is usually pretty substantial in a five year period.
Everyone is happy, and everyone is smiling. |
