spiggytopes

I'm founder of a two-man bootstrapped company writing B2B financial risk analysis software out of London. Lots of interest, we're in advanced due diligence with a couple of very large banks and expect the first sales and rapid growth in the next couple of months. So far, so good.

We were toying with looking for some angel investment, and about eight weeks ago were introduced to a local angel investor. After a a few meetings and lunches he came up with the following offer:

- Investor puts in £200k in return for 20% of the company. Rather more than I wanted to part with but OK as a starting point for negotiation.

- Investor promises to help drive company growth as he has contacts and experience, wants to be involved. Not ideal as we have no idea how he'd perform - in a two-man startup we can't carry a third person who wants to help.

- Investor requires the company to pay him back the £200k at 12% interest rate, personal guarantees no doubt required but I didn't stick around long enough to ask.

The reason the offer was interesting was the light in which it showed the investor. To make such a bizarre offer (basically, to lend us money at a crazy rate, and in addition to demand a large chunk of the company in return for the unproven value he said he could add) made me ask: what would he be like to deal with on a day-to-day basis?

We walked away.

What other crazy offers have startup founders seen?

I'm expecting to make a first sale to a large financial institution shortly, price in the mid-five figures. It's highly specialised risk management software, but is the kind of thing a user might copy onto a memory stick and take to a new employer or a different office.

Some sort of copy protection, so that it can only be used on one machine at a time, seems like a good idea. What's the best option - a dongle, software...? (I know that no option is perfect, this is just to prevent casual usage elsewhere).

Thanks!

I’ve got an issue which other people on HN are sure to have met, and would appreciate their views.

I’ve been putting together a business based around providing a particular type of risk analysis for banks and pension funds. Up till now there have been zero products that make this available at reasonable cost, and there is a gaping market opportunity. The software is written and in beta test, I have a stack of interested clients and meetings lined up for the next few months, and the numbers are pretty compelling.

Here’s the problem. Anyone in the business understands the concepts and the benefits. However, the reaction of almost all potential angels I’ve shown has been ‘we can’t understand what it is you’re doing - we don’t invest in ventures we don’t understand’. I’m beginning to see why TV shows like ‘Dragon’s Den’ only show inventions that can immediately be understood by the audience, rather than more abstract IP such as industrial processes. I’ve made the elevator pitch as simple as possible, but it’s still more complex than talking about an improved mousetrap.

While I don’t actually need angel capital at this stage, this does raise some questions for the future.

- The issue may be due to me, in that I haven’t expressed the idea simply enough. However ‘controlling risk/stopping your bank collapsing’ is just too vague. Are there better ways to get interest? Or should I just wait until I have sales, and let the numbers speak for themselves?

- Do all angels/VCs take this attitude? What proportion of potential investors will dismiss anything they can’t understand immediately? Is it just a question of finding the right investor? (I’m in Australia where the pool of angels is tiny compared to the US).

- How do other entrepreneurs manage this issue? I would imagine biotechnology has similar problems - the potential profits are considerable but the investor needs to be pretty knowledgeable even to understand the opportunity.

I’m a single-founder startup producing specialized risk software for financial institutions. The company is based outside the US but that’s where a large part of the potential market lies, so I’m looking at engaging with a US-based sales-person whom I already know and has in-depth knowledge of the market (and a lot of contacts). The software solves a major industry problem at a fraction of the cost and business risk of existing solutions. Question: What’s an appropriate package to offer the salesperson? I’m willing to consider part-time working, a salary/vested equity mix, percentage of royalties, and so on. Most potential clients are on the east or west coasts, so there’d be a fair amount of travel costs to factor in as well.