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Company's Products & Services Bartered For Equity In Promising Ventures

As the barter marketplace expands and the sophisticated use of this versatile tool grows, we're seeing a growing number of "barter investors" surfacing around the country.

A barter investor is defined as a company or an individual who is willing and able to make a needed and important investment in an early-stage idea on up to an established business.

In the majority of cases the investment isn't a passive one, but rather sees an active investor bringing a contribution that is important—enabling a leverage using the barter investor's already established infrastructure.

Depending upon an investor's niche and expertise, this contribution could, for example, include introducing one's clients to thousands of the barter investor's customers, or providing the advertising to gain new customers as well as other marketing expertise.

Additional contributions might be to offer billing and collecting services, processing of orders, warehousing, shipping, and other services like negotiating bank lines of credits. In short, participation by such an investor quickly fills holes and provides one with a running start.

Three Examples of Barter Investments:

A) The barter investor was an operating service company with a substantial unused line-of-credit. An investor guaranteed the line-of-credit for use by the entrepreneur at a predetermined price for stock. As the credit was used, equity ownership accrued for the barter investor. The investor became a member of this start-up's board of directors.

B) The barter investor, a computer manufacturing company principal, made available $50,000 worth of hardware, software, networking technology and system maintenance services, in exchange for a $50,000 equivalent equity position in the company.

C) The barter investor, a service company's principal, committed the company's staff and administrative infrastructure to handle all the customer service, payroll, accounts receivable and accounts payable, as well as all order fulfillment and inventory control for a rapidly growing CD ROM duplicator. The barter investor also functioned in an interim capacity as a CFO until one was hired.

The Barter Investor's Profile Looks Like This:

  • Provides what you would have used capital to buy in exchange for equity
  • Participates...not passive
  • Prefers early-stage businesses
  • Offers capital and infrastructure (an incubator model)
  • Believes management is most important criterion
  • Looks for venture with capability to grow to $10 million in 3 to 5 years
  • Invests up to $250,000 of products and/or services in exchange for equity

In these examples we see that the entrepreneurs offered equity to vendors who became barter investors by trading their support services and infrastructure for equity in the firms.

Consulting Firm Wants "Secondary Capital" Rather Than Cash

A small consulting firm's enthusiasm for getting paid in a form of "secondary capital," in this case stock options, is producing a windfall for some of its employees.

Parthenon Group in Boston derived 54% of its $39 million revenue last year from exercising options collected as fees—a much higher proportion than most consulting firms.

The result: Parthenon consultants with three years of experience earned an average of $340,000—about $200,000 more than their counterparts at top-tier firms.

Taking a chunk of fees in options "gives our consultants and clients a sense that we're personally invested in our advice," explains William F. Achtmeyer, CEO of Parthenon, which employs 84 consultants.

More consulting firms are embracing this practice, partly to serve rapidly growing high-tech concerns with scant cash, says Wayne Cooper, who follows consulting firms for Kennedy Information in Fitzwilliam (NH).



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