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 Story: Start-up... getting ready to write Chapter-1 Briefly...
Am currently 50-50 in a small manufacturing business (we make biodiesel fuel from various sources of vegetable oil and animal fats). I and my co-founder/partner were just two hobbyists (making biodiesel for our own uses) who joined up in late 2007 and formed this Maryland LLC with the idea of selling the fuel to various users. We are not-- today-- selling product.
For discussion's sake, consider the following "phases":
Ideation-->RDT&E-->Prototyping--**>Commercialization-->Expansion-->Exit
We consider ourselves to be at the far right edge of the "Prototyping" phase, with a proven technology, a positive market assessment (i.e. who will buy our product), and Financial Model (pro forma's) that shows viability using conservative inputs/assumptions around the critical factos (raw materials, labor, overhead costs, etc.).
We (my partner and I) have not put "serious" money into the Company-- around $50k between us, a bare fraction of what it will take ($13M) to make it go on a Commercial basis. We have a couple of "unfair competitive advantages" which we think we can leverage.
Recent increase in "noise level" [in political and other circles] around environmental and energy independence themes has gotten us noticed by some Angel investors who state an interest in funding us to Commercialization phase and beyond.
The mechanism towards which we're headed is to form a new LLC ("NewCo") with these guys, with myself and another partner being the active "management." It's understood/agreed that I am to be the chief exec (title TBD) and the other partner to head up Operations. The additional members' (between 2~5 others) primary roles will be as "funding partners," and-- by extension-- the new entity's Board. (In addition to $$, they bring petroleum marketing and distribution knowledge and contacts to the table.)
Obviously we (my current partner and me) will be dropping WAY down in ownership percentage in NewCo; not, however, to ZERO, as "the math" would indicate [i.e. our $50k versus their $13M points to our NewCo equity as less than 1/2%]. These individuals (the prospective "funding partners") have signalled willingness value our sweat equity and set our ownership at something meaningful between 10~20% each, depending on how the deal is structured (combination of cash-in and loan(s) to NewCo). We two will also become employees of NewCo, with TBD salary, bonus, and benefits (plus dividends/profit sharing ICW our equity shares).
I want to propose terms (acceptable to all parties) to make the following happen:
__ Allow the funding partners to come aboard with their money protected, but which will allow my current partner and me to-- in time and with certain business performance metrics achieved-- earn back, buy out, "claw back," etc... and eventually regain control of the Company.
__ Protect my partner and me from capricious termination (as employees) without significant remuneration.
__ Certain strategic changes (e.g. to sell the company, fire the founders, relocate the business, etc) requiring unanimity or super-majority of voting shares.
__ OTHER gotta-have's that I just haven't yet thought of!
NewCo LLC will have Class-A (voting only) and Class-B (P&L share, only). I assume we need to also look at using warrants, options, loan-conversion, preferred shares, and other vehicles in order to get this done--- but I really don't know which ones I need.
Our model shows that we can plausibly pay dividends, retain earnings, and grow the company's balance sheet to the point where we could conceivably pay out (to those partners) an equivalant sum (in dividends + capital return) of 20% annual return on their $13M paid-in by the fourth year of operations.
Have read "Guts and Borrowed Money" [Tom Gillis]. Am interested in any and all resources for getting this right from the outset.
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Re: Story: Start-up... getting ready to write Chapter-1 Hi biodieseler,
It's great to hear about your start up ideas and passion for what you do! Though I don't know much about your industry specifically, it does seem like a great time to get a business like yours off the ground, so I congratulate you on seizing the moment!
Because you mentioned that you are interested in "getting this right from the outset" may I suggest you take a look at The Profit Process at www.theprofitprocess.com It is a 12 workshop do-it-yourself curriculum for operating a business as profitably as possible. Many businesses jump into The Profit Process after years of operation without it and have to change and mold their current practices. If you already have the mindset from the get-go that you want to "do it right" you have a distinct advantage and you will be successful at "doing it right."
I don't want to sound too salesy. That's not what The Profit Process is about, but I do want to reach out to you since it sounds like The Profit Process would be a great thing for you to look into.
Please feel free to contact me if you have any questions. You can reply here or email me at leah@theprofitprocess.com
Best wishes to you and your new venture!!
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