I am working on a deal with a 10% equity injection. The seller is giving a 20% seller note, and I am financing the other 70% via SBA loan. After considering many different investors, I decided to keep it in-family and only choose my mother as my only investor. I myself will be contributing 78% of the cash injection (8% of enterprise value). My mother will be contributing 22% of the cash injection (2% of enterprise value). My mother will want to give me favorable terms, and will, quite honestly, agree to anything I suggest. However, I don't want to take advantage, and I want to give her a decent investment.
Does anyone have any suggestions on what equity amount is fair? Using % of enterprise value multiplied by a 2x step-up, I could offer her 4%. Using pro-rata of cash injected (and considering my cost of searching and due diligence), I could offer 16%.
Also - is it commonplace to offer preferred returns, or is that unnecessary complication?
Thanks everyone for your help!
Investor Terms for Family
by a searcher from Ohio State University
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