Are there any issues with having an interstate investor?

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I’ve had some interest in my business from an investor on the Gold Coast (I’m in Melbourne). First impressions seem great, but is it an issue that they are so far away? Isn’t it better to have an investor/mentor that I can have regular face-to-face contact with, rather than the odd phone call? Until the widespread use of innovations such as Skype, Dropbox and Google Docs, it was difficult or expensive to communicate and collaborate with business partners if you were not in the same office or city. While the “human touch” is always better, it is certainly possible and more common to have investors, staff and customers in different locations

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I’ve met a potential investor. What can I do to confirm his level of experience?

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I met a potential investor at an informal gathering and he impressed me with the work he said he’s done with several other start-ups. What can I do to make sure what he’s said is correct? Should I contact the companies he said he’s worked with? Or is there a more standardised way of doing it? It is absolutely critical that you perform “due diligence” on your potential investor, just as you would and should for any director, advisor or key staff hires. Remember that all early stage companies succeed or fail based largely on the strength of the team that is built around the founder. This team includes staff, suppliers, external advisors a

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My potential investor wants a 90% stake in my start-up

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I am currently talking with a potential investor who is asking for a 90% equity stake in my start-up for a $1 million investment. We have both agreed that the EBIT in year three will be $5 million and we would be looking to sell the business at this time for $30 million. In my opinion a 30% equity stake would be more realistic for this potential investor. What do you think? You are in a difficult situation and it raises a range of important issues about valuation, motivation, and capital strategy. All fast growing and early stage companies require capital, whether it is the founders own funds, or seed funds from “friends and famil

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How hands-off is a “hands-off” investor?

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A potential investor has told me that he will be “hands-off”. What does that mean in reality? Will he be looking over my shoulder every five minutes? The relationship between you and your and investor is as important as your relationships with your staff and customers. It is essential to establish the “rules of the game” with your investor before any cash is invested, and before you incur any legal agreement costs. I suggest that you sit down with your potential investor. Create an agreement documenting the contacts and communications (formal and informal) you each expect. In other words, you both need to define in writing what is, and what is not, “han

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Is it hard to borrow money from the banks?

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I’ve heard from many people that it’s very hard to borrow money from the banks. Should I skip doing the rounds of the banks and just head straight for an investor? Generally, major banks do not lend to early stage businesses. Except for small loans from the micro-finance units at some banks (e.g. NAB), most banks want to see at least a year of trading before they lend. To borrow a quote from Robert Frost, “a bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain”. Personal finance remains the most common source of finance for start-ups. This includes credit card debt and redraws against a household mort

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A potential investor wants to perform due diligence on my start-up. How can I prepare for this?

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A potential investor has said that they will perform due diligence on my start-up before putting up the money. What kinds of things are they entitled to know and how can I prepare for this? The process of due diligence (or DD) is a lot like the mythical “ball of string”. It can take as long, be as complex and as expensive as you and your potential investor allow it to be. Your investor is “entitled” to know as much he or she needs to know to make an informed decision, and as much as you are willing and able to share. All commercial transactions require some level of DD and the goal for a start-up company should be to keep DD to a reasonable level. You will a

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