Equity Capital: Investors for Your Mobile Food Business - dummies

Equity Capital: Investors for Your Mobile Food Business

By Richard Myrick

When working with investors for your mobile food business, make sure you have a clear investment agreement that defines the interest rate and when payment is to be made. There’s no right or wrong way to structure this agreement.

Some investors don’t want an open-ended deal that doesn’t define an end to the term of their investment, whereas others want to be involved in the business as it grows. No matter how you put your plan to paper, be sure that both parties have it reviewed by their own separate attorneys.

Partners for your food truck business

A partnership is a business association of two or more persons who act as co-owners of a business and operate it for profit. You have a number of different types of partnerships to look at to find the one that best fits your plans:

  • General partners invest in the business, take part in running it, and share in its profits. Each general partner is fully liable for any debts that the partnership may have. This arrangement means that they can lose more than their initial investment in the business if it runs into trouble, and their personal assets may be at risk. Every partnership must have at least one general partner.

  • Limited partners aren’t permitted to participate in the day-to-day running of the business. Their debt is limited to the amount of their initial investment.

  • Silent partners invest money in the business and share in its profits but don’t take part in running it. Like general partners, they’re fully liable for the partnership’s debts.

Although most partnerships are formed due to lack of funding, some partnerships don’t involve cash being invested at all. For example, you may have a funding source but lack financial skills, such as accounting or financial planning, so you may decide to partner with someone who has expertise in these areas.

Likewise, not all food truck owners start their trucks with a culinary background; instead, they go out and find partners who can provide the culinary skills they lack. Be sure you choose people who complement your skills as opposed to mirroring them.

Ask family and friends to become investors

Tapping into the pockets of friends and family has some benefits, such as your family members may give you the money as a gift and not expect it back or the terms of their loan will likely be more flexible than going to a bank.

Asking friends and family also has its share of disadvantages. Number one, you have to approach them to ask for the money. Make sure you present the business to them just like you would pitch it to a bank. Let them decide whether they want to take the risk.

Make sure you have a written agreement or promissory note that specifies the details of the loan. And don’t get upset when they pester you with questions about how their investment is doing. This minor annoyance is another drawback of tapping into this particular money source.

Seek online investors for your food truck business

If you don’t want to potentially tarnish your close relationships, you may want to consider person-to-person lending through websites. Here are a couple of options:

  • Prosper.com: This site allows you take out loans from individuals who are looking to invest some of their excess money. As a prospective borrower, you can request from $1,000 to $25,000 in an unsecured loan and specify an upper limit of interest that you’re willing to pay.

    The investing users investigate your profile, which tells them about your project and shows your site-given credit rating. The lenders can bid as little as $50 on people looking for financing and fund multiple borrowers, spreading out their risk. Depending on the type of loan, lenders can earn upwards of 9 percent interest on their investment. The loans are for three years, and there’s no prepayment penalty.

  • Kickstarter.com: This site represents a new online way to fund your creative culinary idea and has become a means by which numerous food trucks have been able to get start-up capital over the last couple years.

    Kickstarter runs on a crowd funding concept that allows you to accept donations to reach a monetary goal you set (up to $25,000) in return for rewards you determine. You have the freedom to set up your food truck program for however long you think you’ll need to raise the money.

Compensate your investors

Most experienced investors have learned over time that businesses need a grace period to get their business off the ground before they’re able to start making payments. Investor payment schedules tend to be flexible and are easier to negotiate than the schedules banks or other lending institutions set. You can change or update your terms as needed.