Company Structure Advice Needed - New EU Startup

[MankouJoe]

I need some advice on the funding and structure of a new venture we are setting up in the Netherlands, the product is a physical good in the energy sector. There are three founders, each proposed to hold 33.X% each. We can cover the costs for 2023, but these costs are expected to ramp up to around 300k for 2024 and will require additional investment for the total amount. For 2023 Founder (1) and Founder (2) are hesitant about injecting more capital, as there is no revenue strategy yet. Founder (3) is pushing hard for this expansion plan - it could be slowed - but he is unable to inject more capital. Founder (3) still wants to retain his 33.X% ownership but now there is a dispute on how this would be possible. I am not an expert in company structures but it does not seem feasible to me that Founder (3) can maintain his ownership position without additional investment.

Assumptions for 2024
Costs: 300K EUR
Bank Loan: 150K - feasibility for obtaining this is unknown
Subsidy/Grant: 15K
Outstanding capital requirement: 135K

Additional investment requirement from each founder: 45K

For reference:
Founder (1): my affiliate / investor and manager
Founder (2): engineer and investor
Founder (3): engineer

If someone with knowledge of company startups in the early stages could share some advice, it would be greatly appreciated.

From my experience Founder (3) can only expect to draw a salary and cannot retain his level of ownership in 2024, or could he be granted ownership equivalent to a salary? I also do not think Founder (1) and (2) are willing/able to fill the additional 45k hole, which leaves finding another investor.

 

[Marzio]

there is no revenue strategy yet

I'd suggest you to not waste money on any venture if you didn't figure out your revenue strategy first.

 

[MankouJoe]

Yes, that is certainly wise advice. Although, I am advising an affiliate on this matter (I am employed at one of his other, profit-making ventures), I usually do the FP&A work for him. Having spoken with our accountants, it seems we need to iron out a shareholder agreement first, then depending on how he will hold the shares, himself or through another entity, we may need a holding company. I have a meeting to follow on the corporate structure.

The product is great though, I'll give him that. And despite there not being a clear revenue strategy right now, I do not doubt we/they will be able to put something together.

 

[Sols]

If someone with knowledge of company startups in the early stages could share some advice, it would be greatly appreciated.

I say this with experience in startups (own/others) of all stages: no investor or lender is going to offer up money until there is a revenue model and marketing strategy in place.

Furthermore, if you start the business by putting in your own model and leave revenue generation as a future task, you risk ending up in a situation where you need more money. And if all you have by then are some prototypes and maybes from potential customers, the lending and investment terms are going to be horrible.

Think of your business like an airplane. Right now it's being assembled on the ground and you're offering people a chance to invest in the future success. If you get your airplane ready and flying (revenue generating, or maybe even profitable), you will have no problem finding more money. But if you finish your airplane and it doesn't get airborne or gets airborne but starts to lose altitude, no one is going to invest.

So don't put in a bunch of money now if there is no realistic future in the company.

For 2023 Founder (1) and Founder (2) are hesitant about injecting more capital, as there is no revenue strategy yet.

What other value do they bring to the company? If each founder is getting 1/3 share of the company, they should be putting in equal value, which can be a combination of money, skills/knowledge, contacts, hours worked, and however else you value input.

Although, I am advising an affiliate on this matter (I am employed at one of his other, profit-making ventures), I usually do the FP&A work for him. Having spoken with our accountants, it seems we need to iron out a shareholder agreement first, then depending on how he will hold the shares, himself or through another entity, we may need a holding company. I have a meeting to follow on the corporate structure.

The accountants sound smart. Follow their advice.

The product is great though, I'll give him that. And despite there not being a clear revenue strategy right now, I do not doubt we/they will be able to put something together.

This sounds like three ideas people hoping to get rich based on an idea alone. Inventors are generally speaking terrible business people. You need both to make a business selling a new product work.