Reacquiring Your Equity
One of the worst mistakes Bart Breighner believes he's made since founding Artistic Impressions, an artretailer, in Lombard, Ill., was undervaluing the stock he sold to raise early capital.
In the mid-1980s, Breighner sold equity to five private investors. But as the company grew profitable (annual sales are now $33 million), he began regrettingwhat he'd done. "I've offered several hundred thousand dollars to one investor who originally put in $45,000, but she just won't sell," he says.
Granted, the investor, like the other four, took a risk back when the company was losing $140,000 on sales of $650,000. What Breighner wishes he'd donewas structure his equity sale to include a buyback feature that would have let him reacquire stock at some fixed future date or growth stage. If hecould do it over again, his dream deal would include profit guarantees for investors in the event of a stock buyback ? perhaps payouts comparable with the30% rate of annual return targeted in venture-capital deals ? if the company reached sales and profit targets. In effect, he wishes he'd structured a loan of equity rather than a sale of equity. Such a plan "might have scared off some potential investors," Breighner says. "But the flip side of that is that once you've givenaway your stock, it's very tough to get it back."