Re:Should a Cash-Poor Entrepreneur Give Up Control to Keep H...
by rhizome on Friday January 04, 2013 @03:25PM
(#5009658)
Then you talk about by giving up 75% you lose control. Which is true, but 100% of 0 is 0. But lets imagine that there is a chance that Arthur can grow the value of this particular company with his knowledge of the candy business and his credibility. If your company is valued at $1M and you own 100%, you give up 75% and with the help of that investor it becomes worth $5M. Your 25% stake is now worth $1.25M.
This would appear to be a combination of Sunk Cost and Gambler's fallacies. The time and money is gone, the only question is whether this guy can make anything more than she has out of the company. Like I state elsewhere, the $250K he's offering for the stake amounts to only ~$60K per year of time she's already put into it, with nothing substantive but possibilities (without any indication of probability) for the future.
Said another way, this could just be a cheap setup for his friends to nibble away at her remaining ownership now that he's got his. Once they all have her down to nothing, well...it's happened before.
Re:Should a Cash-Poor Entrepreneur Give Up Control to Keep H...
by ChuckMcM on Friday January 04, 2013 @06:57PM
(#5010700)
I don't doubt for a moment that the guy could be a schmuck. I disagree with characterizing him as a 'huckster' simply because of the terms of the deal.
This would appear to be a combination of Sunk Cost and Gambler's fallacies. The time and money is gone, the only question is whether this guy can make anything more than she has out of the company. Like I state elsewhere, the $250K he's offering for the stake amounts to only ~$60K per year of time she's already put into it, with nothing substantive but possibilities (without any indication of probability) for the future.
Said another way, this could just be a cheap setup for his friends to nibble away at her remaining ownership now that he's got his. Once they all have her down to nothing, well...it's happened before.