Entrepreneurs often find their innovative ideas requiring external financial support to grow or thrive. Third-Party Investment Agreements offer a structured pathway for entrepreneurs to secure funding from external investors.
Exploring Third-Party Investment Agreements
A Third-Party Investment Agreement as a formal contract solidifies a financial collaboration between a business entity and an external Investor, be it individual or institutional. The Investor commits a specific amount of financial resources to the Company, while the Company commits to using these funds for specific defined purposes. The Investor’s involvement is primarily financial.
Life Scenario: Fueling Sarah’s Culinary Ambition
Meet Sarah.
She is a passionate chef with a dream to expand her culinary enterprise beyond her small café. As Sarah’s delectable dishes capture the taste buds of her customers, she envisions a chain of eateries to vastly extend the reach of her unique culinary offerings. However, to actualise this dream, she requires an injection of capital.
Enter Michael
An astute investor with a keen eye for promising ventures. He is impressed by Sarah’s culinary skills and her strategic expansion plan: in it all, he sees an opportunity for growth. Recognizing Sarah’s potential, he proposes a collaboration through a Third-Party Investment Agreement.
The Third-Party Investment Agreement
Critical Components
Investment Amount
Michael pledges ₦2,500,000.00 to support Sarah’s restaurant business expansion.
Returns and Repayment
In addition to the initial investment, Sarah agrees to repay Michael a predetermined percentage of the venture’s net profits over a specific timeframe.
Investment Duration
The agreement is to remain active for five years.
Rights and Obligations
Michael will receive periodic updates about the venture’s progress and key financial milestones.
Termination
The agreement at this point clearly and unambiguously outlines the conditions under which either party can terminate the arrangement.
Dispute Resolution
The document defines the process for resolving disputes. In this case, Sarah and Michael opt for mediation as the first line of dispute resolution, and then arbitration if mediation fails.
The Journey and Expansion
With Michael’s investment, Sarah’s expansion dream begins to unfold. The funds are channelled as follows
- Securing prime locations.
- Hiring skilled chefs.
- Crafting captivating marketing campaigns.
Sarah’s eateries become go-to destinations for food enthusiasts and revenue begins to climb.
As detailed in the investment agreement, Sarah ensures that Michael receives his share of the profits.
With the venture’s success, Michael’s investment has paved the way for Sarah’s culinary empire to thrive and also generated returns while on the other hand protecting his investment interests.