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Discussion in 'Other Off Topic Forum' started by Uberpower, Apr 5, 2004.

  1. Uberpower

    Uberpower Formula Junior

    Feb 6, 2004
    902
    Hi All-

    Here we go with another way OT business question from yours truely.

    I have been offered a very good price (25x initial investment) for a piece of intellectual property. The only stipulation, and it is a HUGE stipulation is that the buyer wants to owner finance the acquisition.

    The basic terms are that he agrees to pay 12 equal payments with the first one coming due 30 days after the contract closing. I have stipulated that if a payment is missed, the intellectual property reverts completely to me.

    Anyone have positive/negative experience with this? I don't NEED the money, but it would easily take care of my 4y.o. college fund over 13-14 years of compounding interest... so I WANT the deal to work...

    current contract close date is 4/19.

    Thanks for any help.

    Nick
     
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  3. F-passione

    F-passione Karting

    Mar 31, 2004
    173
    Orange County, CA
    Sounds like it could be a good annuity for you. Is there anyone else interested that can pay now with their own $$. I like the idea of getting it back if they miss a payment. Have the thing drafted by a lawyer so that you're not left out in the cold.
     
  4. Uberpower

    Uberpower Formula Junior

    Feb 6, 2004
    902

    No one else interested at this time, but I have not been marketing actively. 12 equal payments over 12 months sounds good, but it's a pretty big nut to pass every month.

    I am wondering if I should have him prove out the funds first, maybe a credit app? He just bought a house, so he must have a reasonable credit history.
     
  5. future328driver

    future328driver Formula 3
    Silver Subscribed

    Dec 10, 2001
    1,765
    Dallas, Texas
    Full Name:
    Ken Thomas
    I would have a lawyer draft the agreement. But, instead of having the IP revert back to you in case of a default, why not just give the buyer an exclusinve license to the IP up until the time that the purchase is paid in full and then you transfer everything to them. This way, the IP is always in your name until they pay off the debt, but they get an exclusive license to the IP. I think this set-up gives you more control.

    The only downside for the other side is that they cannot sell the IP to another party while they are paying you. If you transfer the rights to the property to them completely with a right of reversion for default, they could sell the IP to a third party before you are paid in full. If they default, you will have to chase down the 3rd party and then you will be fighting with the third party over the rights to the IP. Not a good situation for you to be in.

    Also, look at the dollar amount you are dealing with. If it is relatively small, maybe the potential buyer has insolvency issues if they can't pony up the funds up front.
     
  6. Uberpower

    Uberpower Formula Junior

    Feb 6, 2004
    902
    hmmm... pretty smart! I love Fchat.

    The total amount is $50K, not a ton... but not pocketchange either (for most people).

    Nick
     
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  8. future328driver

    future328driver Formula 3
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    Dec 10, 2001
    1,765
    Dallas, Texas
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    Ken Thomas
    Do not rely on the fact that he just bought a house as proof of his credit history. He could still have solvency issues. Plus, his personal credit is different than his business credit. I would suppose that he is buying the IP for a business reason and thus would have a business set-up that has its own credit history.
     
  9. future328driver

    future328driver Formula 3
    Silver Subscribed

    Dec 10, 2001
    1,765
    Dallas, Texas
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    Ken Thomas
    Maybe you should have a lawyer evaluate the value of the IP. If this guys is willing to pay $50k, it may be worth more depending upon what it is.

    I would have a valuation doen on the IP and then see where you stand. He may be trying to flip the IP. He might believe it is worth much more than $50k, so you give him the rights to it under the payment plan and while he pays you monthly fees, he is out trying to sell it or license it for more money and uses that money to pay you back.

    I would go with an exclusive license until he pays in full so that you are a continuous owner of the IP or make him pay in full without owner financing.

    If you need the number of an attorney that can help you out, let me know. My law firm has a Houston office and they might be able to take a look at it and help you draft an agreement.
     
  10. Uberpower

    Uberpower Formula Junior

    Feb 6, 2004
    902

    That would be great! Could you PM me the number?

    In advance,

    Thanks.
     
  11. future328driver

    future328driver Formula 3
    Silver Subscribed

    Dec 10, 2001
    1,765
    Dallas, Texas
    Full Name:
    Ken Thomas
    One more thing to consider. If the IP is truely only worth $50k, then you are giving him a loan to buy somthing from you. If the IP is only worth $50k and you are set on owner financing, make him pay a slight premium over $50k to cover interest on the "loan" you are giving him. You could easily do a current value analysis on the total price to see what its current dollar value is. That is what you should charge him. IF he is willing to pay you $50k over a year, he is probably valuing the IP at somewhere around $47k (or thereabouts) with the extra $3k thrown in to account for "interest."
     
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  13. future328driver

    future328driver Formula 3
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    Dec 10, 2001
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    Ken Thomas
    is this a patent?
     
  14. Uberpower

    Uberpower Formula Junior

    Feb 6, 2004
    902
    He is valuing the IP at $50K because I said $50K. Maybe the number should be more, maybe the number should be less. Thusfar, the IP hasn't generated any meaningful revenue... but is a very solid product...

    Valuing pre-revenue stuff seems to be more art than science... but if this guy can't pay $50K... he can't pay $500K.
     
  15. Doody

    Doody F1 Veteran

    Nov 16, 2001
    6,099
    MA USA
    Full Name:
    Mr. Doody
    i'm always a firm believer in simple business deals when you're not talking about zillions of dollars.

    if this guy just bought a house, he can probabyl leverage it and give you the $50K up front. or he's got savings. or he's got cars he can leverage. or whatever.

    if it were being paid out over a LONG time - like ten annual payments - that'd be one thing, but 12 monthly payments?

    it sounds to me like he's either (a) paying you out of his monthly cash flow or (b) doesn't have the money.

    if it's (a) and his cash flow is "for real", then he can leverage his receivables and/or get a loan from the bank.

    if it's (b) you obviously don't want to do business with him.

    why does he want to space it out? what's his argument for that?

    doody.
     
  16. Uberpower

    Uberpower Formula Junior

    Feb 6, 2004
    902

    Okay here is the WHOLE story... I think this may be the only way that we are going to get an answer with this one:

    1. This guy was a commodities broker for a long time, had his own trading business in Chicago- no commission trades, just took a piece of the increased value. Father had a seat on NYSE.

    2. Just moved down from Chicago to Dallas area. Enlisted an ex Am.Express guy as his CFO to broker deals.

    3. Went on acquisition spree doing owner financed deals, a trucking company here, a hot sauce company there... a few of the deals have closed- a few didn't work out. He was bragging to me that he did one with only $5k down.

    This was when we met halfway between Dallas and Houston for a business lunch and he stepped out of his new-er Dodge Caravan. <yikes!>

    4. CFO quit and sent public statement: "Due to a series of events happening and not happening, I have decided to terminate my business relationship with CEO NAME immediately"

    5. CEO moves into new house and attempts to reassure me saying that he'll explain everything at 9am tomorrow (Tues).

    hmmm... now that I see it all in black and white... looks a little shakey! It would be nice not have to worry about college tuition ever again though...
     
  17. dm_n_stuff

    dm_n_stuff Global Moderator
    Global Moderator Lifetime Rossa Owner

    Dec 10, 2003
    35,483
    The Sunshine State
    Full Name:
    Dave
    Charge him some interest too. The IRS is gonna treat the deal as a loan from you to him, and impute interest if you don't actually charge him. Has to be at market rates, so, since you're gonna pay taxes on it like it was a loan, may as well make it a real one. Prime plus should work.

    I'm sure Dr. Tax can give you all the details here.
     
  18. Uberpower

    Uberpower Formula Junior

    Feb 6, 2004
    902
    Dr. Tax is brilliant when it comes to these kinds of issues. I'll see him later in the week. Just polling the rest of the Fchatters to see the variable responses.

    Thanks for the advice.
     
  19. future328driver

    future328driver Formula 3
    Silver Subscribed

    Dec 10, 2001
    1,765
    Dallas, Texas
    Full Name:
    Ken Thomas
    First of all, this does not sound like a good arrangement to me. I would walk away if this guy cannot come up with $50k now of if he will not secure the debt for you in some way. DO NOT give him any ownership rights - give him an exclusive license but yo retain all ownership.

    Did you get a non-disclosure agreement from him? You absolutely should have one before you discuss any IP with any potential buyer.

    If this is an idea that you want to patent and have not applied for a patent yet, you have made an offer for sale, so you have one year from the date you disclosed this info to him to file your patent or it is gone for good.
     

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