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I have a lawn and garden product with trademarks and many patents pending which I filled out last August. I have completed all the testing and I'm ready to manufacture. Before I start selling on TV, which is my background, and a few years later go to retail--should I look for Angel Investors after creating a LLC or before? Also what percent is the average ownership with this type of investor, and is it forever?
First of all, lets talk about creating an LLC – Most Angel Investors and VCs wont invest in an LLC, or and S-Corp. They typically put their money in C-Corps. So if you are about to set up your company and are looking for investments, set it up that way.
As for what percentage an Angel Investor looks for – it varies. But, remember this Angel Investor is taking the biggest risk: Its your idea, but its his money! Angels often take around 30-40%. Now you may thing that’s a lot, but remember, he’s not the bank – you guys are now partners! He is your new best friend and he is paying your bills. Without him, you have no money to build your business. Now, it also depends on how far along your idea is. If it’s notes on a napkin the investor wants more. If you are already in production and have sole a few, the investor takes less.
You last question – Is it Forever. YES – well, not forever, but until you sell the business. Again, this isn’t a bank loan that you will pay back at 5.25% APR. This is a marriage. You are partners until the end.
Now to the product. I’m not sure that you need to raise capital from an Angel Investor for this project. You might be looking at the wrong sales approach. You know more about selling on TV than I do, but I believe you should also approach the big box stores like Lowes or Home Depot. They might order crates of these and pay for them up front. Then you can go after some sort of alternative financing option such as PO Financing and Factoring. Basically, you get a purchase order and these guys finance the manufacturing. You deliver the product, they take their cut, and you make money! Then for Home Depots 60 day invoice payment, you get that Factored. You get the cash in a few days, minus a cut.
These were ultra simple explanations of PO financing and Factoring, for more info read here:
Purchase Order Financing
Factoring
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