Questions

I work as a Digital Consultant with 2 brands directly & head an agencies operations as a salaried personal. The agency & I have an understanding. Also my earnings from consulting are higher than my earnings from salary on a monthly basis. I get my clients for consulting via referrals and the period is usually about a year as I focus on the deliverables of building a brand. However, currently I spend about 20% of my time on consulting projects & 80% on the company I work with. I always think of letting go of the company and starting my own venture but I fear my weaknesses in business development would consume me. My clients have been with me for 2 years and have seen great results. My main fear has been in valuation of a startup, the % division in partnership and capital contributed by each party.

(built Spheric / 30+ person consultancy / sold in 4 years)

I'm going to assume you're thinking of starting a service company vs. a product company (even though most service companies do have ambitions of some day having a product, it's best to stay focused on this for now - they are totally different business models.)

The truth is, if you time things right - you can leverage new consulting agreements to help jump start revenues and pay yourself from that. You don't need 24 months of capital, maybe 4 at most.

Just be sure to negotiate fast payment terms with your clients (invoice weekly, net 0, wire transfer) - that should help reduce your risk.

If you feel you need 24 months, then you probably don't have the risk profile to build a company - no entrepreneur I know ever had that much or even have that now as they scale.

As for % division in the company - it all comes down to risk. If everyone's going to contribute evenly to building, growing and managing the business - then spit it evenly using a vesting period (4 years, 1 year cliff, monthly vest). That way if anyone doesn't work out, and leaves within the first year - then they don't get anything. This is very standard.

As for the valuation of the company, it's essentially $1 until you have someone willing to buy some equity/shares for more than $1 dollar. Again, I'm assuming a service company (not product). Everything above needs to be revisited if you're looking to raise equity funding.

Overall, the best financing is customer financing - trying to lock in long term (retainer) contracts with 2-3 customers before you jump ship is the best way to proceed.

As for equity, keep it simple .. for now, just start the company yourself and convince others to start/join and see how it goes for 3-4 months before you do anything legal. Many people won't last and it'll save you a bunch of legal money. Just do contract initially for everything. If they can sell, give em' 10% of the profit per deal up to 6 months.

Again, keep it simple.

Hope that helps. Always up for a call if need be.


Answered 6 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2019 Startups.com LLC. All rights reserved.