Every investor obviously interested in max ROI but what is a realistic ROI an investor would seek on a capital loan for startup venture?
What is a reasonable duration for that receiving back the principal and said return? On a hypothetical example of $1m USD ?
I can only speak for myself, and not necessarily from a position of experience, but if I was interested to lend a friend in a startup venture $1m I would be eager to start receiving principal payments back at the earliest time said venture can do them; even if they start off quite small (ramping up in proportion to revenue, but with flexible timing to allow revenue time to become consistent).
The terms could be something like at least one principal payment of $10,000 within 6 months and minimum +$50,000 over the next 6 months thereafter. By end of year 2 principal paid back should equal a healthy +$xxx,xxx aggregate. Doubling or tripling by another $xxx,xxx by end of year 3 such that by the start of year 4 the culminated principal payments will have completely repaid it in full. So that year 4 the extra interest payments would pay out up to $x where x is what I am trying to get your feedback on as a reasonable amount. Some leeway would be afforded such that the loan could extend into another 1 or 2 years if absolutely necessary before triggering a default scenario.
In a nutshell: a $1m loan repaid over a target of 4 years, with flexible repayment timing such that there is no min monthly (only a min yearly repayment total), with a final year of pure interest payments up to the amount agreed in advance whether that is 10% ($100k) or 50% ($500k) or 200% ($2m).
There would also be some kind of agreement that if the business did very well A) the principal and interest payments would accelerate (ie- repaying back in full + interest in 3 years if the business could accommodate) and B) the loan would convert into a recurring dividend perhaps up to another cap or indefinitely if the friend was generous; coming from entrepreneur perspective I might prefer to give said entrepreneur the ultimate determination.
Anyway, a credit card loan might give the lender a return of 15 to 30% (compounded year over year).
So that aside I would be curious to know perhaps some examples of typical returns expected from that of a traditional bank. As well as from a less traditional investor; ie- friend or family type situation; not a gift but something that results in reasonable return and satisfactory end result for both parties.