5 thoughts on “Is it OK for investors to demand an annual dividend on their investment?”

  1. I think it sounds awkward. To me they’re basically asking to get a percentage of the company for half of what they’re willing to put up and let yourself pay them the other half in dividends. Furthermore I think a 10 % annual dividend is high, unless there’s some serious risk associated with investing in your company in which case it might be an ok premium.}

  2. I’ve heard of similar dividends, but they were designed to be paid in equity. In essence, it is a mechanism to slowly increase the investor’s ownership stake in the company over time. It’s a tool by savvy investors to make the upfront seem low but to get a bigger stake later.

    I would avoid a 10% dividend situation as it makes it more of a loan than an investment. If you’re paying it back over 10 years, perhaps there is other debt financing that gives you more flexibility with your cashflow over the next few years.}

    This comes from a well-known VC on Sand Hill Road, who can’t speak about such things publicly. I post it here for your information:

    “10% is high, but dividends are fairly typical, although usually not paid in practice. There is often a ‘when and if’ clause declared by the board in preferred stock terms, but I’ve rarely seen the board actually declare a dividend.”}

  4. Thanks, Nivi, for the reference to Brad’s site. Perhaps we can get *him* to comment on the topic as he has previously published his views on it. Thanks for trying to keep our content sharp.}

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