The only ship that doesn’t set sail is a partnership.

Brace yourselves. Another blog post about MANteresting. Over the last six months we have had one specific individual reach out to us multiple times. He wants to join the team and has expressed interest in growing our site and giving us money to help make that happen. Jesse and I have always politely declined his offers.

After a few months of silence, he reached out again last week. We decided this time to open the door for conversation. After a few email exchanges, the time came for us to tell him what we would want from him. Jesse and I talked and felt that offering him a 5% stake for $10,000 was fair. He responded pretty quickly saying he’ll go in for $10,000 for 7.5%.

Frick.

His counter was reasonable. Knowing that he reached out to us, and not us to him, I responded back with 5% for $10,000 and clarified he would be given no voting rights in the business. He simply becomes a shareholder, not a team member. He obviously didn’t like that.

Seeing that I am not an investment banker I really have no freaking clue what I’m doing, haha. I’m convinced he’d pay us $10k for 5% if we gave him voting rights. That puts our value at $200,000. I have no clue if MANteresting could sell for $50,000 tomorrow or $500,000.

Question 1: Where can we get an appraisal of our site’s value? Who do you talk to? Angel investors, lawyers, bankers?

I will also admit I am a little ignorant on how partnerships work in business. Jesse and I get along great. We are 50/50, and don’t necessarily know what a 47.5%/47.5%/5% voting split would mean.  We’ve all heard about the Facebook partnership debacle...

Question 2: If we bring him on with 5% voting rights, all hell could break loose couldn’t it? What would keep me and this guy from forming an alliance and taking virtually all control away from Jesse? Nothing right?

We really want to stop burning a whole in our pockets. We could use this $10,000 to build out virtually every feature on our wish list and probably sustain the site for an entire year.

Yes, I have more than $10,000 in my savings account, but I’m not comfortable putting an increasing amount of money in MANteresting until I can be certain I will be getting all of it back. We know we have huge potential (and this guy does too), but I bet MySpace thought it would be around for a lot longer than it was too. We’d build an iPhone app tomorrow for the site if we had $10,000 to mitigate the cost.

Ugh. There are so many details I want to share so you guys have a better understanding of the business and can give more solid advice, but this post would be like 10 pages, and 90% of you would be bored out of your mind. Anyone out there with experience dealing with this kind of thing? Jesse and I are trying to navigate as best we can, but really need to speak with an expert. Lawyers, bankers, and people who successfully operate partnerships… please drop me a line! Heck, even if you don’t know anything, do you know someone who does?

My favorite nail from yesterday:

23 thoughts on “The only ship that doesn’t set sail is a partnership.

  1. Interesting situation you have going there. I say go with your instincts and stick with 5%. This is your baby and I think if you feel really strongly about it than you must continue to ride it out. I think soon you will need to hire a pro to evaluate the worth of your company. Unfortunately I do not know anyone that does that. Sorry I could not be more help.

  2. CAUTION!!! Please be slow and seek advice from successful web startups. I would not do it for a number of reasons:

    1. Your site currently has no real value. It has POTENTIAL value. That is why you can’t quantify what the site is worth, you have no data points with which to value the site.

    2. Things are very easy right now with a 50/50 partnership with two like-minded individuals. Things could potentially get VERY complicated even with a 5% stakeholder.

    3. $10,000 is not a life changing amount of money.

    Ninja, start to monetize the site somehow so that you better quantify what the site is worth. After that point it will become clear what 5% shares of the site is worth. My 2 cents. 🙂

  3. Only take an investment if you need it. Otherwise, you are handing control (even 5% of it) to someone you don’t know in exchange for cash you don’t need. What is his background? Tech? Active Investor? If you do decide you need the cash and want him on board, what will you expect from him? Having him be a non-active participant with voting rights is great for him, not so much for you.

  4. I don’t know the first thing about running a website or a startup or anything, but I’m going to offer my opinion anyway.

    $10,000 isn’t worth the complications from adding a third party when you have the means to contribute it yourself. I mean, you have more in your savings account now already than a lot of people do at retirement. Skip a vacation or two next year, drop the money into Manteresting, and hope for a big payoff. Yes, it would suck if you added $10k and then your userbase just disappeared, but if $10k gets you an iphone app and possibly an android app, more than likely and with the popularity of pinterest, you’re going to add more users.

    I also agree that you may need to start monetizing the site (and apps too!). Don’t overdo it, but it’s been long enough where you probably should be starting to look for a return on your investment.

  5. I think you have to ask yourself, if someone offered you $200,000 today (the sites value if you sell 5% for $10,000) to buy the whole site, would you take it?

    If your answer is, “hell yes! I could use an extra $100,000 (your half)! Who knows what will happen with this site but I want $100,000!” I would sell the 5%.

    If you answer is, “frick no! I am going to sell this puppy for $5 million to Pintrest in 3 years and $200,000 is chump change.” I would not sell the 5%

  6. I think you should change the name of this blog to “punch a start up in the face.” I really like reading your posts about personal finance but not this topic so much. Especially since I’m not a man.

  7. Do you have a relationship with Ramit Sethi from I Will Teach You To Be Rich? I think he has gone to some of those FinCon type of events. If you do, perhaps you could reach out to him? I think he has relationships with people who could give you advice about your site.

  8. I think you really need a lawyer to write out a partnership agreement between you and Jessie? (current partner) and to include a formal process for bringing new partners into the business.

    If I were you, I’d go to the most local law school’s clinic, and see if they can draft a partnership agreement for you. The students (and supervising attorney) will know all of the questions that you need to be thinking of right now.

  9. As a lawyer, I say tread carefully. If this isn’t done properly, you will be handing this guy the power to at once both control the company with only you or with only Jesse while also giving the guy the ability to demand inspections of your corporate records. How well do you know the guy? Definitely protect yourself legally. Do your due diligence.

  10. Do NOTHING without speaking to a lawyer with experience in this area. I am not American so don’t know all the legalities but I know from first hand experience how badly things can go with partnerships, make sure you protect yourself and your business. I would be leery of adding more people to the business and make sure that any agreement you have is the proper/ legally applicable one for your circumstances. It could end up costing you way more then the $10000.00 he’s offering if you aren’t careful.

  11. Partnership laws vary from state to state, but what what you probably want is a limited liability company – it will give you more flexibility to have an unequal partner. Again, LLC laws are different in each state. You can start researching this for free at nolo.com. You should also consider talking to someone from the Service Corps of Retired Executives (SCORE), which is free and associated with the US Small Business Administration – you can find more at score.org

  12. My advice for anyone starting a new venture: In the beginning, KISS (Keep It Simple, Silly!)

    Every investor you say “yes” to is going to try to take some level of control away from you, and you do not know this person very well. Loans always comes with strings attached.

    If it was me starting a new venture (and, in fact, I *am* starting a new venture in December) I’d say “no” to all outside investors until I have a better handle on my company: its aims, its goals, its value, its growth potential, etc.

    From the outside looking in, this does not seem like the right stage in your venture’s development to bring in investors–it feels premature.

    Anyway, my opinion–to Keep it Simple, Silly–comes from dealing with hundreds of small businesses every year helping them obtain various government certifications. I see so many ill timed partnerships and “silent partner” investment deals that go sour because the partners really don’t know each other, including where they want to be in 5 years. Sometimes even if all partners love the product, they can have amazingly divergent–and oppositional–views on how to grow and manage the company, leading to uncomfortable disharmony.

    Bearing all that in mind, I’d say wait–don’t take money from anyone until you are at a later stage in this project and know what you want from investors (beyond just their money) and where you want your company to be in 5 years. Once your business plan/business vision is more mature, you will have an easier time picking partners and/or angel investors to fit that vision.

  13. Hey, Ninja, great summary of classic founder issues.

    I have some suggestions; too long for this comment section. Check your PDITF e-mail. Feel free to share it with your readers if you want.

    Bottom line: MANteresting.com can be worth approx $200K-$500K. Angel investors have plenty of methods to choose these numbers, but we’re all just makin’ stuff up.

    You can sell equity (angels get shareholder votes) and keep your power with a board of directors (you, your other founder, maybe a third friendly director for tiebreakers). Angels with 5% of the shares don’t necessarily merit a board seat, but they get to observe. Lawyer up to do the paperwork right.

    As MANteresting takes off, you’re going to start bumping into founder lifestyle choices. Let me know how I can help.

    • I have to agree. You know nothing about this guy. Nothing should be done without the advice of an experienced lawyer in this area.

      – LR (writing from work after being without power for 3 1/2 days from the storm)

  14. It is better to hire an expert to help you come up with a better decision. If you really don’t need the money, there is no point of agreeing with the deal.

  15. I can’t figure out why this is even on the table. Does this guy bring any expertise? You both don’t really need the $10K. Are you then going to use the 10K to plow it into the business? If so aren’t you are really giving him more than 5% since he will get the benefit of whatever you do with it?

    If he wants voting rights then this should be dead in the water unless you believe his vote is worth something in terms of thinking outside the box or insight.

Comments are closed.