Barter Investors Trade Company’s Products & Services For Equity In Promising Ventures

From the past. . .
BarterNews issue #43

Barter Investors Trade Company’s Products & Services For Equity In Promising Ventures

By Gerald Benjamin

It’s the age old question. Do you need the money, or do you need what you’re going to use the money to buy?

As the barter marketplace expands and the sophisticated use of this versatile tool grows, we’re seeing a growing number of barter investors 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.

Participation by such an investor quickly fills holes and provides one with a running start. 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 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 offering billing and collecting services, processing of orders, warehousing, shipping, and other services like negotiating bank lines of credits.

The Barter Investor’s Profile Looks Like This:

• Provides what you would have used capital to buy in exchange for equity
• Participative...not passive
• Early-stage preference
• Offers capital and infrastructure (an incubator model)
• Management most important criterion
• Venture must have 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

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 startup’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, A/R & A/P, 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.

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.

(Mr. Benjamin co-authored the book Finding Your Wings: How To Locate Private Investors To Fund Your Venture.)