I'm sorry if I'm creating a thread that has already been done - I couldn't find one, although I found some conversation about this subject in different threads, but a little too superficial for me to get enough information.
I'm looking for perspectives and thoughts on the ancient question: is it better to grow naturally and slowly or with investor money and quicker and what are the most important circumstances about it.
For example:
Business X:
Case 1: natural
Online service business 2 years old, all natural
Ownership 50%-50% between 2 founders
1st year sales 30 000, 2nd year sales 50000, projected sales for 3rd year 80000, so we could figure that it will probably be roughly 60% a year growth naturally.
Profit margins in 20s.
Companies expected net worth in 5 years time: ~900k
Case 2: With investor money lets say business gets external investment for 150k for 33% equity (just a random example, don't get caught in the number), so its 33-33-33 at the end of the 2nd year. 150k would then be theoretically equal to next 5 years natural growth profit (roughly). Let's assume that instead of 60% growth the sales will grow 80% with the investment money (random number also)
Ownership 33%-33%-33%
3rd year sales 90000, 4th year 162000 etc
Profit margins same - 20s
Companies expected net worth in 5 years time: 1,7 mln
Case 3: With bank loan lets say there's a third option: bank loan for 75k and that would lead to sales growing 70% instead of 60%, but with the loan being paid back hinders gowth a little, lets say 3%
Ownership 50%-50% between 2 founders
3rd year sales 83500, 4th year 139000 etc
Profit margins same - 20s
Companies expected net worth in 5 years time: 1,169 mln
In those cases founders net worth would be after 5 years (starting from the end of the 2nd year):
Case 1: 450k
Case 2: 567k
Case 3: 585k
But those are just the random calculations and there is lot more to take into account.
Case 1:
Cheers!
I'm looking for perspectives and thoughts on the ancient question: is it better to grow naturally and slowly or with investor money and quicker and what are the most important circumstances about it.
For example:
Business X:
Case 1: natural
Online service business 2 years old, all natural
Ownership 50%-50% between 2 founders
1st year sales 30 000, 2nd year sales 50000, projected sales for 3rd year 80000, so we could figure that it will probably be roughly 60% a year growth naturally.
Profit margins in 20s.
Companies expected net worth in 5 years time: ~900k
Case 2: With investor money lets say business gets external investment for 150k for 33% equity (just a random example, don't get caught in the number), so its 33-33-33 at the end of the 2nd year. 150k would then be theoretically equal to next 5 years natural growth profit (roughly). Let's assume that instead of 60% growth the sales will grow 80% with the investment money (random number also)
Ownership 33%-33%-33%
3rd year sales 90000, 4th year 162000 etc
Profit margins same - 20s
Companies expected net worth in 5 years time: 1,7 mln
Case 3: With bank loan lets say there's a third option: bank loan for 75k and that would lead to sales growing 70% instead of 60%, but with the loan being paid back hinders gowth a little, lets say 3%
Ownership 50%-50% between 2 founders
3rd year sales 83500, 4th year 139000 etc
Profit margins same - 20s
Companies expected net worth in 5 years time: 1,169 mln
In those cases founders net worth would be after 5 years (starting from the end of the 2nd year):
Case 1: 450k
Case 2: 567k
Case 3: 585k
But those are just the random calculations and there is lot more to take into account.
Case 1:
- the product develops slowly, through constant feedback-improve loop
- cash is always tight - strategic decisions tend to be on the cautionary side
- no-one on the outside to be responsible to, 100% freedom in choices
- many opportunities go by because risk threshold of taking them on is too high
- investor could possibly offer help more than just the money injection
- founder's shares drop 33% in amount
- responsibility to the investor
- risk threshold lower - more opportunities to take on different projects but also fail in them
- no strategic help from bank
- ownership is not changed
- responsibility to pay back loan
- harder to get investments down the road, because of the dept
- risk threshold still on the higher side, although money is not that tight
Cheers!
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