Questions On Adding An Investor / Intellectual Property

Discussion in 'Starting & Running a Business' started by Guest, 3rd Jul, 2017.

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  1. Guest

    Guest Guest

    My wife and I co-founded a new business around 12 months ago. It is an online platform which charges users a subscription fee for access to a range of online tools.

    We were discussing additional features we would like to add with an international colleague and the costs involved to do so. They expressed interest in funding these costs by providing a loan or taking an equity stake.

    It's not a particularly large amount of money (we could continue bootstrapping ourselves and we are applying for grants), but it would be useful as it may be some time before we can expect to extract a return and could bring forward our ability to improve the product. I also think this colleague would add value to the business (for advice + international recognition) as they have a lot of experience in the field and particularly in the niche for those additional features we are looking to add. However, they are already involved in a collaboration of sorts which would likely bring some of the same benefits without needing the loan or equity stake.

    Presently the company is setup with a 50/50 equity split, each half has a different share type so that we would be able to payout special dividends unevenly if suited us from a tax perspective (as opposed to adding complication of paying differently as an employee, etc).

    I am looking for your thoughts [not advice :)] on the situation and in particular with the following:

    What would you do in this situation (accept the funds or continue bootstrapping/grant applications)? Or if not enough information, what sort of questions would you be asking yourself to think through it?

    We setup the company through our accountant, would we be best speaking with a lawyer in regards to any complications coming from adding an external investor?

    What can we expect to pay in lawyer / accountant fees to either change ownership structure of the company or write up a loan contract? Would the investor or company usually pay for this?

    Given they are overseas (not Australian), does this increase the above costs?

    With our current share split and two different types (e.g. A & B shares), adding a third owner could complicate this somewhat. Is it easy to change the share arrangement? e.g. creating a third share type (C) so that we could still pay out the different sized dividend between my wife and I? Taking profit from the company is still some time down the track, so maybe we would be over-complicating the setup by doing this?

    Our bank asked about the company liabilities when we were borrowing for recent home loans, to date these liabilities are only loans to the directors (i.e. us) with no set repayment schedule / interest rate. If we went in the direction of borrowing the money from the colleague, could this potentially impact our serviceability for future home loans? I wouldn't think so unless there was a personal guarantee from the directors?

    On another note, we are considering consults with international colleagues (unpaid), as well as our existing customers, with regards to the features we are looking to add. If they propose an idea or refinements to the product that we then implement, does this have any bearing on our IP (intellectual property)? What level of input (to an end product) would an individual typically need to make before they can make a claim they contributed to or own a portion of the product IP? Is there somewhere I can do some reading on this (written for the layman, rather than a lawyer)?

    If we need a lawyer as opposed to our accountant for advice on some of the above, I would also be interested in any personal recommendations (no need for them to be Adelaide based).
     
    Perthguy likes this.
  2. geoffw

    geoffw Moderator Staff Member

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    I'd suggest that you need specialist advice about startups. They are quite a different animal than established businesses, and many professionals won't have a lot of knowledge about how they operate.

    I've been involved with a startup. They have just been successful in getting some seed startup. The grant is $45k in return for 10% of the company, which is perhaps not quite as far along as yours. They have some sales and monthly subscriptions but not a lot. It also includes a lot of training (I think it's one training session a week for three months) as well as mentorship. So far, just 3 weeks in, the mentorship has been very valuable.

    It would take a while to get that sort of a deal, but I mention the figures to give you an idea of stake vs ownership, to see if you're in the same ball park.

    At minimum there should be somebody out there who can give you specific advice about your situation. Have a look at coworking spaces. I can see a number around Adelaide. These can be good to get involved in. Startups can pay for office space for casual access, a fixed number of days per week and full time. You get to meet other startups which is valuable. And often you can get access to advice.

    At the same time it may be worth while for you to look at avenues for getting finance for yourselves to avoid somebody else getting the equity until you really need it. An unsecured personal loan or credit card advance may give you enough time to learn about the alternative paths you have available.
     
    Perthguy likes this.
  3. Guest

    Guest Guest

    Thanks @geoffw. We have currently been working on the startup around our existing full-time commitments, but are looking to reduce the full-time work commitments so we have at least 1 day per fortnight in a co- working space to immerse ourselves in the startup environment some more. We have been attending a number of local events too.

    We could personally fund the expansion with cash, but at the same time having already contributed funds to it's initial development we are looking for alternatives. Will have to wait and see with the grants we have recently applied for, the one you mentioned sounds perfect for us, do you mind me asking whether it was a government based grant or accelerator / private investment?
     
  4. geoffw

    geoffw Moderator Staff Member

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    That one was with a private accelerator in the ACT, which works closely with the ACT. It's actually the second year that we applied for a grant with them, and the fourth one we have applied for. So persistence pays- as does getting a little traction with customers.

    There are a few around, I guess you will come across them with the coworking space. Some are local, some national, some even international. So good luck with it all, and let us know from time to time how it's going.
     
    Last edited by a moderator: 10th Oct, 2021
  5. geoffw

    geoffw Moderator Staff Member

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    Here's one example which has just popped up,though it may only be food/beverage startups which are eligible:
    Lion Accelerator Program
     
    Guest likes this.
  6. Guest

    Guest Guest

    Outside of our scope unfortunately. I have noticed a few industry leaders offering similar recently, including a couple of the major airlines. It's a good thing for the startup sector & probably saves them a lot of R&D expenses :)

    Will continue to keep an eye out. One of the unfortunate things about Adelaide, there is a great community here, but fewer local accelerator / incubator programs than in the eastern states.
     
    geoffw likes this.
  7. geoffw

    geoffw Moderator Staff Member

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    Canberra doesn't have a lot available either. But there's fewer startups as well. So it balances.

    Adelaide seems to do ok from a quick search.
    Entrepreneurs: Adelaide, the city dubbed the start-up capital of Australia | Invest Adelaide

    www.startupadelaide.com.au


    Global accelerator program Techstars opens in Adelaide
     
    Last edited by a moderator: 10th Oct, 2021
    Guest likes this.
  8. Guest

    Guest Guest

    6 months on and we are funded with around 200% of our initial expenditure (which was personally boot strapped / loan to the company), whilst maintaining the majority of our equity. This was through a mix of bringing on a collaborator/mentor/investor and a separate grant.

    We are in the process of having a number of additions to our platform developed which we expect will remove some bottlenecks we've had to attracting signups/new users.

    It has been quite an experience learning so much, about so many things, in such a short space of time.

    I was really quite surprised how little it cost us to make changes to the company e.g. ~$200 for ASIC / accountant fee to issue the new shares & ~$950 for a Shareholders' Agreement.

    Our '2.0' build will keep us busy over the next few months and then we'll be heading overseas to run a workshop on it :)
     
    Sackie, Scott No Mates and geoffw like this.
  9. Shawn

    Shawn Well-Known Member

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    Wow, glad to see it has really taken off and that you have an investor/collaborator/mentor on board!
     
    Guest likes this.
  10. Guest

    Guest Guest

    Thanks. I won't have considered it to be taking off until we get some real revenue coming in :D but it has been great to see our idea/MVP validated in a number of ways.