Had an offer for someone to invest $30,000 for a return of 5%

(this post is a feed post from my comments on reddit)


well investment is different from loan, though they can overlap.

if they are investing 30k for 5% they they believe your business is worth 600k in value (they believe if you try to sell your business it will sell for 600k) – if this the route they are offering, they would own 5% of your business, and be entitled to 5% of any dividends you pay to shareholders (if you pay profits to the owners of the business), when you sell, they will be entitled to 5% of whatever the business ends up selling for.

If its a loan – then they might be saying the’ll lend you 30k, and you have to pay back 30k + 5% (1500) – they would not own part of your company.

the third scenario is where they lend you 30k as a loan, but once it reaches a certain point it would convert to equity (i believe called a convertible note, but check as not my area of knowledge)

assuming its equity – you need to determine if 600k is a realistic value for the business, and if you want this person involved in your business, you should speak with a lawyer.

next, you should also consider if you need the 30k, and if there are better alternatives (e.g. borrow from the bank) to get that 30k.

Had an offer for someone to invest $30,000 for a return of 5%
byu/Nivsy_21 inEntrepreneur

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