Just read an interesting article from "The Vest Pocket Consultant" discussing fund raising in the current economy, and how we are in a buyer's market, people with money have the negotiating power.
One example in the article is the case of a startup that was offered $2M for 20% of the company, and that went public one year later with a $300M market cap.
While $2M for 20% could look reasonable these days, and even though we are talking about a very specific case, it is interesting to consider the cost of money in this example: the $2M worth of stock were valued at $60M the following year, so this is a 3000% interest rate. And then you realize in retrospect that if you can find $2M at 25% or even 30% interest rate, you are left much richer at the end of the game. AND you do not have to deal with people on your board, a higher cost of transaction (stock deals are more complicated than loans from a legal prospective). Unless you do not mind leaving $57M on the table, this is clearly an option worth looking at.
While this is an extreme example, it is always good to keep this in mind...
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Wednesday, March 11, 2009
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