Including an investor in your company’s funding picture is open to many different options, following are a few scenarios a company might consider.
Dividends
Starting in the third year following the investment, the company will pay to the investor a dividend. Dividends will be shared among all investors on a prorated basis. The amount of the dividend will be determined by the board of directors, but in no event will total dividends issued reduce the fiscal year end cash ratio to less than .75.
Investor Redemption
Investor redemption is based on a pre-
Redemption can be based on the following schedule.
Year One
125% of original investment which is equal to a 10% internal rate of return
Year Four
190% of original investment which is equal to an 18% internal rate of return
Year Five
250% of original investment which is equal to a 21% internal rate of return
Enterprise Buyout
Enterprise buyout of investors is based on a pre-
Buy back will be based on the following schedule.
Year Three
400% of original investment, equal to a 60% internal rate of return
Year Four
600% of original investment, equal to a 57% internal rate of return
Year Five
800% of original investment, equal to a 52% internal rate of return.
Convertible Note
An alternative to a direct investment is a loan from an investor. A specified interest
rate would be defined with payments due at regular intervals over the term of the
loan. The investor would have the option to convert the loan to a percentage interest
in the company for a pre-