Buying into a company / funding rounds etc Buying into a company / funding rounds etc
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  1. #1

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    Default Buying into a company / funding rounds etc

    So long story short, I went to see a company this week which is VC backed and is going through it's next funding round.

    It's a SAAS product in a niche area that I have a wealth of experience in. I had trialed and cancelled it as I felt it didn't work as well as it should have & started getting into online conversations with the founder. Over those conversations I made some suggestions and as I was free was asked if I wanted to come down for a chat.

    During the chat, it became quite obvious that not only was it an area of expertise of mine, I also knew how to monetise the product, and came up with suggestions on some changes holding back on giving away all of my advice.

    A discussion took place and I was asked by some board members if I was available and they wanted some help, but actually would I be interested in taking a share in the company & they would pay me a retainer to come and help shape the product.

    Never bought into a company like this and was wondering if any of you others have had similar opportunities and the approaches you've taken?
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    Couple of threads in contractors taking a stake in the company instead of payment. So far we've a couple thst reported back getting nothing and a few with no feedback. No had yet come back to say it worked.

    Up you how much you are willing to lose fixed rate wise against the slim chance this actually working.
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    Quote Originally Posted by northernladuk View Post
    Couple of threads in contractors taking a stake in the company instead of payment. So far we've a couple thst reported back getting nothing and a few with no feedback. No had yet come back to say it worked.

    Up you how much you are willing to lose fixed rate wise against the slim chance this actually working.
    This is an interesting one, because last year I was thinking if I was to build a product in this marketplace I would want it to X and Y, and I would do it a certain way. I didn't know how to build X, but I did know Y. Seems they've built X and don't have the skills for Y.

    Not sure how buying in works especially with EIS etc
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    Quote Originally Posted by MarillionFan View Post
    So long story short, I went to see a company this week which is VC backed and is going through it's next funding round.

    It's a SAAS product in a niche area that I have a wealth of experience in. I had trialed and cancelled it as I felt it didn't work as well as it should have & started getting into online conversations with the founder. Over those conversations I made some suggestions and as I was free was asked if I wanted to come down for a chat.

    During the chat, it became quite obvious that not only was it an area of expertise of mine, I also knew how to monetise the product, and came up with suggestions on some changes holding back on giving away all of my advice.

    A discussion took place and I was asked by some board members if I was available and they wanted some help, but actually would I be interested in taking a share in the company & they would pay me a retainer to come and help shape the product.

    Never bought into a company like this and was wondering if any of you others have had similar opportunities and the approaches you've taken?
    Is this something you could invest in via your ltd (rather than personally)? It might be worth a chat with a specialist accountant.

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    I haven't done exactly what you describe but have some similar experience.

    I invested in a friends company as a seed investor and got SEIS relief on my investment, this entitles you to 50% tax relief on your investment, so if you put in £20k, you get £10k tax rebate effectively. Also gains are free from capital gains tax and if it doesn't work out you get further tax relief against your loss. This is a very efficient way of investing but you have to be careful on the terms of EIS/SEIS investment, namely make sure if you are going to get paid by the company, ensure it is a very low rate, I cant remember the exact wording, but when I did some contract work for the company I invested in I made sure the rate was less than half I would normally charge.

    Otherwise I would say do it, if you believe in the company and more importantly the people it can be very lucrative. To give you an idea the company I invested in has increased my investment by 10x in 5 years, 20x with the initial tax relief.

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    And sorry about stating the bleedin' obvious, but it's always worth repeating.

    Never invest more than you're prepared to lose.

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    I’d think twice before investing actual money into a company backed by VCs - would stay away unless I had comparable to them resources and thus get same favourable conditions, such as typically VCs would have preference on sale to get their money first on sale or liquidation.

    Now if you want to invest your time for shares then only you can judge whether it’s worth it, I would only mention that you should make sure it goes via EMI scheme - make sure shares get confirmed valuation from HMRC (this might be an issue since VCs already invested and it would be hard to argue that value of shares will be lower than what they paid, if you get shares free you’d have to pay income tax/NICs - this could be big amount, and you’d need good EMI compliant contract otherwise you may find at later you owe a lot more in tax than you thought.

    Most important I think is making sure (given we are not in 20s anymore) is to avoid being sucked into it and spending potentially best years of your life just because you got some shares in non-performing company that you can’t give up.

    All in all assume those shares will be totally worthless.

    HTH

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