Equity Investor

[Minerswife]

My husband is starting a business. His father decided he wanted to invest in the business and give us the start up money of $40,000. He would have a 20% equity share in the business. His father has told us he has gone to the bank several times and keeps telling us it will be 3 weeks. He also wants to give us $25,000 first then in a month, give us $15,000 etc. because of tax purposes. We can't figure out what he is doing because we have never heard of a loan taking this long or a loan where they don't give you the full amount up front.

We have met with him weekly and he has been very excited. We met last week to start work on the equity agreement as we are keeping this "all business." I am starting to worry. It seems like he is stalling. This is the second time he has delayed the opening and my husband told him with this delay, we will have to wait until February to start the business bc of regulations, etc. He is saying the weeks til the first payment but has not said a firm date. Would you be worried?

[Minerswife]

I should also say that his father started an investment LLC and the money is going to come from there to our business so we had to wait for his LLC to be formed and that is what caused the first delay

[Twhansbury]

Agreements aside maybe the three of you need to sit down outline timelines and decide if and when things need to happen.

[Harold Mansfield]

Would you be worried?
Yep. I'd be 100% worried.

Not becuase of anything bad about your father in law, even though it sounds like he doesn't actually have the complete amount available to him and is trying to scrape it up, but because in my experience anytime you have all of your eggs in one basket and you keep getting delays and aren't exactly sure what's going on....it's a bad move to depend on it.

That being said, I'd feel better about it if he just came clean and told you what was going on so that you can plan accordingly. Instead it seems like he's telling you what you want to hear and trying to save face or his position as an investor. That is NOT a good way to go into a business venture. Because if you do actually get it off the ground, he will pull the same BS when you can least afford him to be so vague and it will hurt the business at the most inopportune time.

Family or not. You need to be able to trust your business partners to keep everything above board. You can't have the money man being all secretive and unreliable. It's a recipe for disaster. Don't want it so bad, that you are willing to overlook warning signs. Better to wait until you have more control over the situation.

[Minerswife]

Thank you so much for the input. I have felt the same way.

Fast forward to now. We postponed the launch until January 1. Investor has his hands on entire investment funds now. We are sitting down in the next week and signing contracts. I have stated in the contract that we must receive entire investment by Dec. 31, 2013 before the contract is effective. I am also having everyone sign a non-disclosure.

I will keep everyone posted!

[dmerrill]

There are many posts on these forums about investor relations problems. Most (all?) were caused by the original agreements not addressing all the potential issues down the road. Especially since this is a family deal, if you have not had your agreements reviewed by a business attorney, I strongly recommend that you do so.