Thing-O-Matic Fundraising

[FreeMoney]

I am sorry? You mean I have to purchase it myself? I am the guy who will put in the code and the labor and direct the operation.

That is not how things work.  What you are talking about is a labour.  It requires a salary.  This can be negociated.  A director can perfectly be a simple employee.  Same for any technician.

But this is different from the way profits are distributed.

This is basic capitalism.

Capitalism is free people making whatever agreement they want about capital and funding. If some people want to pay for his labor with half the profits from their capital, then so what?

[kiba]

Capitalism is free people making whatever agreement they want about capital and funding. If some people want to pay for his labor with half the profits from their capital, then so what?

grondilu felt this is an especially unfair arrangement. I want his money but I also want an amicable relationship with my shareholders.

[grondilu]

I lowered the fundraising target to 612.5. Until I can front the other half, it will remain no go.

Ok, but investors will be more interested in bringing the second half if you can show them that you already own the first.


To put it simply,  your project exists already :  right now you own 100% of the shares.  But those shares worth nothing, until you convince people to buy some.

If you convince investors that you own 625$, and tell them that you intend to buy a 1250$ worh machine, then you might convince them to buy 50% of your shares at 12.5$ a share.

Your company will then have the necessary amount, and you will have a the right to keep 50% of the profits.

[grondilu]

This is basic capitalism.

Capitalism is free people making whatever agreement they want about capital and funding. If some people want to pay for his labor with half the profits from their capital, then so what?

Not exactly.  Capitalism is the ownership of means of production.  What you are talking about is liberalism.

Of course if someone wants to pay labour with a share of profits, he can.  But practical experience shows that it is not interesting.  Profits are the fruits of ownership, not labour.  I know I would not buy a share of a company which distributes a proportion of profit to workers.  Or at least I would diminish my price in accordance.

[kiba]

I lowered the fundraising target to 612.5. Until I can front the other half, it will remain no go.

Ok, but investors will be more interested in bringing the second half if you can show them that you already own the first.


To put it simply,  your project exists already :  right now you own 100% of the shares.  But those shares worth nothing, until you convince people to buy some.

If you convince investors that you own 625$, and tell them that you intend to buy a 1250$ worh machine, then you might convince them to buy 50% of your shares at 12.5$ a share.

Your company will then have the necessary amount, and you will have a the right to keep 50% of the profits.

It will be hard to prove that I have 625 bucks, especially when I don't like showing my paypal account to outsiders.

[grondilu]

It will be hard to prove that I have 625 bucks, especially when I don't like showing my paypal account to outsiders.

That's an other reason why reputation is so important.  You have to make people believe in you when you tell them something.

Of course it will be easier if you abandon the idea of owning 50% of the company, and let investors share say about 90%.  You would receive 10% of the profits, plus a salary.

Edit.  By the way,  proving that you own some money is easy with bitcoins.  You just have to use keys which are known in the bitcoin network to worth a certain amount.  Since those keys support signing, it is easy.

[kiba]

In the mean time, I'll guess I'll prepare a "prospectus" about the business idea. It will also include details of how to do assembly and voting, all the possible costs, business model and much more.

It'll be available for viewing and feedback.

[grondilu]

In the mean time, I'll guess I'll prepare a "prospectus" about the business idea. It will also include details of how to do assembly and voting, all the possible costs, business model and much more.

Good.  Looking forward to that.

[Anonymous]

Nice idea Kiba. I will buy some shares when you issue them.

[FreeMoney]

This is basic capitalism.

Capitalism is free people making whatever agreement they want about capital and funding. If some people want to pay for his labor with half the profits from their capital, then so what?

Not exactly.  Capitalism is the ownership of means of production.  What you are talking about is liberalism.

Of course if someone wants to pay labour with a share of profits, he can.  But practical experience shows that it is not interesting.  Profits are the fruits of ownership, not labour.  I know I would not buy a share of a company which distributes a proportion of profit to workers.  Or at least I would diminish my price in accordance.

That definition is fine, I don't see how it precludes a group of investors from prepaying for Kiba's labor with $650 and letting him pay for his half with that from being called capitalism.

You can call it a bad deal if you want, and I don't necessarily think it's optimal that he put in no money upfront, but it's still capitalism.

[grondilu]

That definition is fine, I don't see how it precludes a group of investors from prepaying for Kiba's labor with $650 and letting him pay for his half with that from being called capitalism.

You can call it a bad deal if you want, and I don't necessarily think it's optimal that he put in no money upfront, but it's still capitalism.

Basically if you give part of profits to a non-owner, it's kind of a gift.  In capitalism, you can give things to people for no reason.  You can say it's capitalism if you want, but to me it is just as absurd as saying charity is part of capitalism.

More precisely, if Kiba insists on keeping 50% on the profits, then I consider that he owns 50% of the company.  Therefore, the shares that he will sell will represent 50% of the company, and nothing more.  That's why if the machine he wants to buy costs 1250$, and if he wants to sell 100 shares of his company, then I will price these shares at :

1250 / 2  / 100 = 6.25$

Anyone who would pay more would be fooled by Kiba, imo.

[Anonymous]

That definition is fine, I don't see how it precludes a group of investors from prepaying for Kiba's labor with $650 and letting him pay for his half with that from being called capitalism.

You can call it a bad deal if you want, and I don't necessarily think it's optimal that he put in no money upfront, but it's still capitalism.

Basically if you give part of profits to a non-owner, it's kind of a gift.  In capitalism, you can give things to people for no reason.  You can say it's capitalism if you want, but to me it is just as absurd as saying charity is part of capitalism.

More precisely, if Kiba insists on keeping 50% on the profits, then I consider that he owns 50% of the company.  Therefore, the shares that he will sell will represent 50% of the company, and nothing more.  That's why if the machine he wants to buy costs 1250$, and if he wants to sell 100 shares of his company, then I will price these shares at :

1250 / 2  / 100 = 6.25$

Anyone who would pay more would be fooled by Kiba, imo.

Have you seen kickstarter? It helps fund inventors and creative people by "crowdfunding".
 Kiba is trying to follow that model. He could put his idea on such a site and keep 100% of the company and pledgers get a defined benefit or special deal in future. The special deal in this case is a share in future profits.

Instead of using a crowdfunding site he has brought it here. There is nothing wrong with that model.

[grondilu]

Have you seen kickstarter? It helps fund inventors and creative people by "crowdfunding".
 Kiba is trying to follow that model. He could put his idea on such a site and keep 100% of the company and pledgers get a defined benefit or special deal in future. The special deal in this case is a share in future profits.

Instead of using a crowdfunding site he has brought it here. There is nothing wrong with that model.

I don't say it's "wrong".  I say that what he's looking for is not investment, but rather "patronage" or "charity".  Or some kind of a mix.


PS:

The special deal in this case is a share in future profits.

Let me correct you :
the special deal in this case is a share ''of 50% of'' future profits.

That's a big difference.

[skull88]

Nice idea, I'm bookmarking this topic and hopefully something good comes out of it, looks promising and if shares are sold I'm interested in them.

[nanotube]

Than you'll have to wait until I make enough money from other business venture before I'll consider raising capitals for thing-o-matic.

I understand.  It's perfectly normal from you to want to make money with your idea, without giving half of it to investors.

To do so, you need to raise half of the price of the device.

But you can also accept the idea that investors will gain more money than you, at least at the beginning.  Then, with the money you'll earn, you will buy their shares back, until you eventually own more than 50% of the company.

this is really rather incorrect. he's the principal in this venture, and he chooses to sell X% equity stake for Y amount in funds. there's nothing wrong with that. sweat equity is quite important.

you are of course welcome to decline his offer, or try to bargain for more stake per dollar, but it is not unreasonable for him to claim some percent of equity without necessarily putting in that same percentage of monetary capital. that's how public financing works.

e.g., when google sold its ipo for $ungodlyamountofbillions, while page and brin kept >50% of equity stake, do you think they magically came up with billions of their own money to put in? no, they didn't have it to put in. essentially, they said "we're selling X percent of the firm, being represented by some number of shares. investors, feel free to bid on the right to own a share".

[grondilu]

this is really rather incorrect. he's the principal in this venture, and he chooses to sell X% equity stake for Y amount in funds. there's nothing wrong with that. sweat equity is quite important.

you are of course welcome to decline his offer, or try to bargain for more stake per dollar, but it is not unreasonable for him to claim some percent of equity without necessarily putting in that same percentage of monetary capital. that's how public financing works.

e.g., when google sold its ipo for $ungodlyamountofbillions, while page and brin kept >50% of equity stake, do you think they magically came up with billions of their own money to put in? no, they didn't have it to put in. essentially, they said "we're selling X percent of the firm, being represented by some number of shares. investors, feel free to bid on the right to own a share".

Well, this is all quite true.  But to me it is not clear that Kiba was aware that he was selling 50% of his company, and not 100%.

Kiba oviously can't sell his reputation at a huge price as Google did.  The only thing he could sell beyond the price of the machine, is his idea and his motivation to make it real.  And it is not particularly original.   Thus to me, his company worhs very few more than the price of the machine.

It is nice anyway to see such a young person (I think he said he's a teen) interested in venture capitalism.  I might indeed be interested.  But he has to come up with a proper initial offering.

[kiba]

Well, this is all quite true.  But to me it is not clear that Kiba was aware that he was selling 50% of his company, and not 100%.

Kiba oviously can't sell his reputation at a huge price as Google did.  The only thing he could sell beyond the price of the machine, is his idea and his motivation to make it real.  And it is not particularly original.   Thus to me, his company worhs very few more than the price of the machine.

It is nice anyway to see such a young person (I think he said he's a teen) interested in venture capitalism.  I might indeed be interested.  But he has to come up with a proper initial offering.

I am a college student, not a teen.

[nanotube]

this is really rather incorrect. he's the principal in this venture, and he chooses to sell X% equity stake for Y amount in funds. there's nothing wrong with that. sweat equity is quite important.

you are of course welcome to decline his offer, or try to bargain for more stake per dollar, but it is not unreasonable for him to claim some percent of equity without necessarily putting in that same percentage of monetary capital. that's how public financing works.

e.g., when google sold its ipo for $ungodlyamountofbillions, while page and brin kept >50% of equity stake, do you think they magically came up with billions of their own money to put in? no, they didn't have it to put in. essentially, they said "we're selling X percent of the firm, being represented by some number of shares. investors, feel free to bid on the right to own a share".

Well, this is all quite true.  But to me it is not clear that Kiba was aware that he was selling 50% of his company, and not 100%.

Kiba oviously can't sell his reputation at a huge price as Google did.  The only thing he could sell beyond the price of the machine, is his idea and his motivation to make it real.  And it is not particularly original.   Thus to me, his company worhs very few more than the price of the machine.

It is nice anyway to see such a young person (I think he said he's a teen) interested in venture capitalism.  I might indeed be interested.  But he has to come up with a proper initial offering.

indeed - now that we're all on the same page, the bargaining can commence.

[kiba]

indeed - now that we're all on the same page, the bargaining can commence.

Commence what?

[grondilu]

indeed - now that we're all on the same page, the bargaining can commence.

Also, I'm not very keen on buying a share of a company, knowing that the initial founder will own 50% of it.

Because this gives him a bit too much power, imo.

Say, for instance, that too a small amount is raised, and that the machine cannot be bought.

Then we make an assembly and we decide what to do.  Several proposals are submitted :

1.  We launch an other raise of capital, increasing the number of shares, thus diluting the capital ;
2.  We let the general director (Kiba) negociate a loan with a bank ;
3.  We foreclose the company, and distribute the treasorery to stock owners ;
4.  We foreclose the company, and give all the treasorery to the general director ;

Of course, most stock holders will vote for 1., 2. or 3.

But Kiba might very well vote for 4.  He will then have taken all the money from investors, without having broken any rule of capitalism.

Sounds so outrageous that I'm not sure I'm right, but I see no reason why it could not happen.

PS. Even if you buy 49.9% of the company, you can get screwed like this.
There is a funny saying in french that describes that :

Petit actionnaire minoritaire = petit con.
Gros actionnaire minoritaire = gros con.

Hilarous, but difficult to translate.