A burning question

[Enigma]

The scenario is that with a current BP we are propose; is based on a decision we made to start a new corp to get new funding.
Said business plan we have now suggests someone investing by starting a New Corp and they get to keep 70% of the New Corp and give us 30% ownership PLUS 7% royalty
on our product, we get to keep all IP. Is this a good approach or not, comments please?

Thank you,

David

[Paul]

The scenario is that with a current BP we are propose; is based on a decision we made to start a new corp to get new funding.
Said business plan we have now suggests someone investing by starting a New Corp and they get to keep 70% of the New Corp and give us 30% ownership PLUS 7% royalty
on our product, we get to keep all IP. Is this a good approach or not, comments please?

Thank you,

David

It’s hard to say without knowing the product, the market and how much funding is required. However, assuming that you need considerable funding to launch/develop/market the product it seems like a reasonable deal. 7% is pretty good. You probably wouldn’t get much more than that on a straight license deal if there are a lot of costs to launch. In this case you also retain 30% of the company meaning 30% of the profits after you are paid the royalty. Your retention of ownership of the property may or may not be meaningful depending on your right to reclaim it. As a minority owner you will need a few extra protections such as anti dilution, piggy back rights etc.

[phanio]

Does not sound good to me. What does the investor really get for 100% financing? Should get 100%. Don't think that many investors will go for this. If I was a potential investor in your new corp, I would require that you at least match me dollar for dollar - that way you have as much at risk as I do.

Your best bet is to find other ways to finance your company - ways that create a win / win situation for everyone - not one that gets you what you want with no resource, no risk or no responsibility.