I'm stuck in a situation. I started consulting for a start up for a fixed dollar amount per month. This startup is owned by 2 partners - one of them is the CEO. Since 2012 when they started it, they both have invested around $350K total. Up until now, they have not asked for funding. They have a monthly revenue of around $20-25K (mostly consulting revenue) with a $30K monthly burn rate. For the 1st time, they went cash flow positive last month. They don't have any full time employees, but have around 10-12 guys working on and off on temp basis - on 1099. Now, they are looking to get funded. There is an investor willing to invest $2M as seed and asking for 10% of equity and a board seat. They are very interested in that offer and considering it. Their cap table looks something like founder shares - 80% and common stock - 20%.
I have been consulting for them for 4 months now. After 2 months, I realized they don't have the cash to pay me for my consulting fees. However, since I believe so strongly on their product / services / business model, I decided to stick. In return, they offered me to do a cash investment around $100K for a 3% equity (undiluted founder shares). With this cash influx, they plan to start paying back my consulting fees arrears.
Also, with the $2M funding, they are offering me to become a full time employee with executive role.
I'm looking at this from a long term perspective. What attracts me is the 3% equity in the company and with my 100K investment, they will start paying my consulting fees monthly.
I'm not able to decide if this a good deal for me? Also, what happens if the $2M funding does not come through? Ultimately, how can I protect my investment? With my investment, should I also ask to become a board observer?
I have been consulting for them for 4 months now. After 2 months, I realized they don't have the cash to pay me for my consulting fees. However, since I believe so strongly on their product / services / business model, I decided to stick. In return, they offered me to do a cash investment around $100K for a 3% equity (undiluted founder shares). With this cash influx, they plan to start paying back my consulting fees arrears. Also, with the $2M funding, they are offering me to become a full time employee with executive role.
I'm looking at this from a long term perspective. What attracts me is the 3% equity in the company and with my 100K investment, they will start paying my consulting fees monthly. I'm not able to decide if this a good deal for me? Also, what happens if the $2M funding does not come through? Ultimately, how can I protect my investment? With my investment, should I also ask to become a board observer?