I am starting a fashion retail business this year, and I need a total initial investment of $300,000. I don't know about financial issues regarding shares, equity and dividend. I'm currently looking for an investor to fund my business for a total amount of $300k.
What is the great offer for a seed investor? He will be the one to fund the full amount, while
I will be the one who will work out everything. Is it equity? Or shares? Or dividend? What is the best offer and what will the percentage be? I want the fairest decision for me and for the investor.
is it equity?or shares? or dividend is the best to offer and how many % it will be?Shares and equity are the same. Equity means a part of the company which is actually made by handing them over shares if the company has shares (not all forms have).
Dividend, on top, is the payout of profits according to shares. So, you have a million in profit, pay out 100,000 USD as dividend and it is divided by equity holders according to the number of shares each has.
If its shares, how many shares of my future business will have?When you cook, how many meals do you cook? We can not know, you do. A company has as many shares as the owners / founders declare. I can start a company with 100,000 shares or with 100 million shares, all that is my decision when I start it. Naturally, the value of the shares fluctuates too - nothing is fixed here, it all depends on what the company owners decide.
how many % to give? and how long?% is to be negotiated, but "how long" is meaningless. Either you want a loan, or an investor. An investor is not "how long"", it is you give him shares in return for money for the business. When I buy 10,000 microsoft shares there is no "how long". I own them, they are not borrowed.
A book about the basics of running a business is a needed read before dealing with more money than a house has - or you may end up in court.
What is the great offer for a seed investor?One that makes him 3 million within 5 to 10 years potentially. Minimum.
Please, take some beginner classes how businesses operate or you get yourself into deep legal trouble.
These arrangements can be structured in a myriad of ways.
Typically if you are just starting off your business it is worth little to nothing. Once you have your designs and prototypes ready and are talking to investors they will usually expect to give you that $300,000 for a % of your business. I would imagine for that amount of start up money they would want over 50% as they are taking all the risk. Over time they would expect to get paid back based off of profits / dividend payments. Faster the business is making good money the faster they get their money back and more.
Welcome to the site, Mimi.
If I were you, I would see if you can make an experiment to get a better idea of who your market is and what they actually want. As an artist/artisan, that is not typically the way we think, but you need to be CUSTOMER FOCUSED to be successful as a designer.
There is a great article about how to make an experiment to see if there is a market for your products. One way you could implement this idea is by making stuff and putting it on eBay or etsy for sale. Going to local arts/crafts marksets may be a next step. (Apologies if you have already done this.) By taking baby steps like this, you will have a lot of information about your customers and the market and also some income that you can show an investor to prove that the business idea has some merit.
Try to find a way to set up the business on your own without an investor, at least at the beginning. This way you will learn heaps and you will still own the whole business. Getting some mentors and people that will give you business advice will also be invaluable. (I am happy to have a brief chat if that would be helpful.)