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I need advice! Just launched my app and it's garnered a lot of investment interest and have no idea how to proceed.

Hey all!

I'm Phil and have lurked here for a long time while working on my app, so unfortunately this is only my second post. I just launched my mobile app (solo developer and founder) for a niche but growing market 3 days ago.

So far I've been reached out to by 3 entities all interested in making large (to me) $20k+ investments into the app. I've never launched a successful business and currently am doing this as a sole proprietor. I have no idea how to succeed or even what to do with the investments if I accept.

Any advice for a total noob? Do I need to contact a lawyer and set up an LLC? If I take on investors, how the hell do I value the company properly and again, do I talk to a lawyer about this?

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    There’s way too much to cover in a simple IH response, so I’m going to hit the basics for you, having gone through investments in two of my previous companies:

    • Yes, hire a lawyer
    • Yes, at minimum you need an LLC, though it’s possible investors will not complete the investment unless you’re a C-Corp (which is very expensive, so make certain you want to do this if it ends up being required)
    • Depending on the type of investment, you might not need worry about valuation
    • If you don’t know how to use the money, seriously consider whether or not you should take it
    • Make sure you like your investors if you accept any deals, as you’ll be working with them and they will have some control over you
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      Oh man, you're the first reply on here that I've had so thank you very much for taking the time to help!

      Would hiring a lawyer help to answer many of these questions with regard to how to handle taking investments? Or should I be looking for some sort of mentor to guide me? Basically my background is in development, and have worked for companies my entire life with this being my first 'On my own' venture.

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        A lawyer is going to be able to provide you the best advice for your business (remember they generally represent the business not you). That said, they are very expensive. So if you can find a mentor, they will be able to answer most questions and give you advice. Then lawyers will be able to comment on the legal-specific aspects of things.

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          Excellent, thank you so much.

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    The first question to answer:
    Do you need money? Do you know what you will do with it?
    Can you grow your business without it?

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    Here are my thoughts:

    • How you'd use the money depends on how you'd fuel traction and growth. That's usually by spending on sales and marketing. That could be hiring a sales person, paying for a Google App Ad, or using other channels to promote it. The trick is, you shouldn't try to step on the accelerator until you've gotten a bit of traction and worked out some of the kinks.

    • The structure and complexity of the deal will depend on the investors. You'll see either debt or equity used as the investment vehicle. That is, they're both commonly used in all stages of a startup or company.

    • If they're smart, they will insist on either preferred stock or a convertible note. Smart investors wouldn't touch common stock because in the event of a business liquidation, they have subordinate rights.

    • If they want either preferred stock or a convertible note, you would have to incorporate and it would need to be a C Corporation. Also, a lot of companies incorporate in Delaware because they have courts dedicated to business law issues. So, cases can be fast tracked in Delaware where they may drag on and on in other states. This is what a corporate attorney told me.

    • Both accelerator programs I participated in told us that early-stage investors usually don't want to see you use their investment to pay yourself. An investor might expect you to take equity and then start compensating yourself once the revenue justifies it.

    I agree with Justin, if you proceed you need to hire a lawyer. By the way, even though "a lawyer is a lawyer" you should look for someone that has experience negotiating deals like this and has experience structuring them. I know a good attorney with experience in this area of the law in Dallas if you want a referral.

    Edit: by the way, VCs typically expect large multiples or returns where Angels expect smaller multiples.

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