Interested In Investors?
Jason wants to start a multi-million dollar business, and thinks investors are the way to go. Does Dave agree?
QUESTION: Jason and his wife are thinking of getting into the assisted living business after years of caring for his mother. It would cost them several million to open up the home. What does Dave suggest about investors? Dave shares his thoughts about how silent partners aren’t really that silent and how he would never be able to do this deal himself.
ANSWER: Basically, you’re just looking for some private partners that would put some money up and get a return on their investment. You can’t do too many of them because you’ll get crossed up with the Securities and Exchange Commission, like you were selling stock to shareholders. That’s called Blue Sky laws, and you want to stay away from those. You’re talking about 10 people or less. In the old days, they’d be called silent partners. In the business side of things, we’d call them venture capitalists.
But if you were to sell your business idea to a venture capitalist, they would put up the money and own 80%. At that point, they own your life. Most investors want heavy security on a deal like this, so they’ll want a lien on the property. There are a million ways to structure this thing, and it’s a matter of finding the circumstances under which you can attract someone to hand you a million dollars. They won’t settle for a 12% return, because they can get that with a lot less risk in a mutual fund or a basic real estate deal. They’ll really want to see some upside. They are going to take the lion’s share of your life in this situation, and that’s what drives a lot of people toward banking.
I wouldn’t do this deal, because I can’t think of a way to put this deal together where I’m excited to be in it.