Has anyone tried revenue share agreements for early investors?
I'm building a software startup, and am at a point where I need to raise a small investment of $10k from friends and family to get me off the ground. I'm at a pre-revenue stage and haven't launched yet. I want this to be a lifestyle business.. not something that I plan on selling down the road. So I don't want to offer equity. I want to do a revenue share agreement where the investors are paid a monthly % of profits. Does anyone have any examples or suggestions on what the terms for those types of deals typically look like? Thanks!
A contract might do the trick. You might put a goal on it: maybe they invest $10K and you revenue share until you hit $50K. That gives them 5x, like a real investor, without tying you down for the end of time. You could put a timeline on it, say, 2 years of revenue share, but they might not go for it or be mad if you only made $500.
Or just structure it like a loan (with a contract) and get rid of this revenue share idea. You have the option to repay a certain amount each year or interest/penalties are tacked on. You could put in a clause that requires you to repay 10% of revenue to protect them.
Be careful to make it not look too much like an investment so you don't have to comply with business structure or investment laws (although $10K is so small that it probably wouldn't matter). Also, as above, put limits on it: don't let it survive until the end of time.