Getting investors to help open a business

MAXX · 05-30-2008, 03:07 PM

Well, I'm still kicking around the idea of opening my own fitness center. I actually have a chiropractor in town who likes my concept of opening a multi-purpose facility--fitness center, sports training, batting cages, chiropractic, masseuse, natural/holistic healing--kind of a one stop spa type place that offers a variety of services. He said he would be interested in pursuing that in about 10 years when his kids get out of med school and we could all go into business together. It all may be just a pipedream, but it is an interesting concept.

In the meantime, I would like to open a small scale center to get things rolling. My dilemma has been the financial part of it. I don't want to give up a good job as a teacher, take out a loan to open a business, and then have it fail miserably. So an idea I've been considering is to build the business based upon a plan similar to the Green Bay Packers, where the team is owned by the fans. I would start an investor drive--a capital fundraising drive designed to build a base of investors at different levels say from $25 to $1000. With different levels of investment come certain "rights" as a an investor in the company (I haven't come up with anything along this line yet). This would start as a letter writing campaign with a website to track progress. I would send letters to CEO's of the top 1000 companies in the U.S. explaining what I'm attempting to do. As things moved along and got bigger, I would seek more publicity--I am thinking along the lines of the "red paper clip" ordeal. All money collected would be placed into an interest-gaining fund, used only to support the campaign until enough was garnered to open the business.

I like to sit around and come up with crazy ideas like this. So, is this beyond crazy or is it feasible? Is it even legal? I have no clue about any of the legal and business aspects of seeking investors. Just figured I'd see what kind of response I'd get here.

Jean-Paul · 06-04-2008, 05:31 PM

Don't do it. You won't own or control shit, and you'll have too many people trying to tell you how to run your business. Very bad idea.

I have used investors in the past, and I always have an attorney draw up a VERY specific contract that informs them that they are SILENT partners. If you can do it through a bank it would be best. If you do it with partners make sure that you have a solid buy-out plan in place in case you need to dump them.

Not meaning to sound callous here, but they are generally well-off from having made some decent business decisions in their lives... They aren't just giving the money away. They want to make some more money. Gyms are very high-risk, so you really do have to romance someone into investing. You will need an "angel investor," but just make sure that you don't get in a rush and sign away rights to your business. Your agreement needs to show them an ROI that will make them consider taking the risk.

Do you have equity in anything that you can borrow against? One way to get more than your borrowing power will allow on its own is to use the SBA. They will guarantee 85% of your loan if a bank (preferred lender) likes your venture, and then all you have to come up with is equity on 15% of what you want to borrow.

MAXX · 06-04-2008, 06:54 PM

Thanks for your candid input, JP......

Pug · 06-06-2008, 01:51 PM

Quote:

Originally Posted by MAXX

Is it even legal?

Probably not as you've outlined it. But with appropriate legal guidance you could structure things so that you don't blow yourself up. Of course, you could follow every rule and reg to the "t" and still get sued by your investors if the enterprise doesn't pan out.