If you sought near term investment returns that were lucrative and dividend paying, would you select a poorly performing stock, like that of GM?On the other hand, if you could experience a return on investment based on GM's sale of vehicles paying a little piece of revenue to you every time there was a car sold, an investment in GM may be quite profitable for you.
Our new company found this unique way of funding appropriate for it's launch phase. Through a creative funding consultant, our company found dollars for our start up by agreeing to share gross revenue with the founding sales force of our company. For every purchase of our primary product, a digitally delivered marketing package, the founding sales force receives a share of 5% set aside specifically for this purpose. Let me share a few significant advantages of this type of arrangement, some disadvantages, and then some qualities of companies most likely to benefit from this type of significantly different method of funding.
Some of the advantages include the ability to receive funding from "angels" without giving up stock or equity. Those people close to the founders who would have generally been interested in stock ownership discovered with this method that they could share in the gross revenue of the entire company without having to wait on profitability or annual accounting. A second advantage was the significantly reduced paperwork. Our company did not need to author a complex private placement memorandum meeting the strict legal requirements such documents require. A third advantage surrounded the unique nature of the relationship between the founding sales force and the company. By virtue of their understanding of our company's business model, they are now actively engaged in promoting the company, it's business, and all of it's sales reps. Since they have a stake in every product sold, they are proactive in their corporate promotion.
Disadvantages have been few but the first would be the double edge side of sharing a unique program with a traditionally minded professional. When one has spent his/her life in traditional business models, sharing corporate gross revenue on product sales is a very new concept. You have to be able to share the specific nature of your product, it's place in the market, why sales are likely to occur and why your company features the management team to pull it all off. Another consideration, do you want involvement? If you don't feel your company is a fit for a collaborative group of founding quasi-partners, this model may not be a fit. When you are not sharing equity in your company but still accepting cash in return for gross sales participation, you need to be ready to communicate, communicate, and communicate some more. What companies may be a candidate for this type of funding? I don't pretend to be an expert on this method of funding, having used it one time for my company. I can however attest to a common thread in the companies that have used this model. They feature adequate margins in their product lines to share the wealth. They have management teams in place that have deep relationships with people who have the ability to purchase this type of future revenue stream, without equity ownership. The executive team has to be equipped to communicate effectively with interested parties concerning this different method of funding. One could sum it up this way, you have to first become a student of that you wish to teach. This tool for funding was not invented by my company. We employed the expertise of a great consulting partner who had several of our type start-ups under his corporate belt. The experience has proven effective for our company. Great success to you as you begin your journey to launch.
If you would like to learn more about how Prosperity with a Purpose employed this unique method for funding Prosperity's national launch I would be glad to share more information. Call 800-682-3922 and speak with Sherman Mohr.