Sealed bidding funding


2

I want to invite different investors/angels to invest a US version of my company which is up and running in Europe. In trying to get the best deal I am thinking of a 'sealed bidding' auction for a part in the US version of the company. Any thoughts on this approach?

Funding

asked Dec 28 '10 at 19:59
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Brianable
11 points
  • I think if you want to ensure that no one invests in your company that is a fine way of doing it. You also ensure that you are not getting people you can work with/work well together with - you are going only for the highest bidder(s). Definitely about the worst way to do it. – Tim J 9 years ago

2 Answers


3

The classical way of obtaining VC capital, with pitches, term sheets, negotiations etc exists for a reason. It works.

Before you go create your own model for how investment negotiation is done, I think you need to answer one essential question: What's in it for the investors? There are far more hopeful entrepreneurs seeking capital than there is capital. You must get used to the fact that VCs set many of the deal terms. I can't think of a reason why a VC would consider your offer.

Another thing; you plan to have a US an EU version of the same, and you're only letting the investors in on the US version? What is to stop you from allowing the EU version to "steal" US sales, thereby undermining the US investors' value? Again, why would an investor want to take this deal?

My advice:

  • For capital, stay with VCs with domain knowledge, and with more or less industry standard terms.
  • Have just one company, keep all IP and assets in this company, and accept investments in this company.
answered Dec 28 '10 at 21:31
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Jesper Mortensen
15,292 points

2

"...for a part in the US version of the company..." -- What does this mean?

My guess, from the sketchy details, is that you have systems and know-how that you believe can be applied in the US, and that you have decided you don't want to jeopardise the EU operation by pursuing US expansion directly - and that you need to hit the US at scale rather than by making a limited scale test.

Your 'sealed bid' idea seems to take for granted that there's one way of structuring the deal that all prospective investors would favour. But that seems very unlikely indeed to me, if my speculation is correct.

First, I'd be amazed if there is only one way of constructing the legal connection between the EU and US ventures. And second, I'd be amazed if there is only one way of describing the cash need and its breakdown into loan-type and equity-type components.

For me, the idea of sealed bidding is something that may come at the end of a process - in the happy situation where you have many more prospective investors than you need, and where you either have no need to access local expertise or resources, or else you have pre-qualified prospective investors to ensure they bring what you need.

So if that describes where you are, then why not go for it? If not, you should consider doing the relational groundwork to see how the variables in your control can be played to maximise value to investors and to you.

answered Dec 30 '10 at 04:51
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Jeremy Parsons
5,197 points

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