How much equity should I give an investor?
March 9, 2009 by Debt Equity Financing
Filed under More Equity Answers
Can you answer Hyliix’s question about Equity?:
My partner and I have found an investor for a new business, in which we need $15,000. The investor has offered to give us this money if their stake in the business is worth their while. What is a reasonable equity to give the investor, or is there some method to calculate this?
Equity Tips
My partner and I have found an investor for a new business, in which we need $15,000. The investor has offered to give us this money if their stake in the business is worth their while. What is a reasonable equity to give the investor, or is there some method to calculate this?
Equity Tips
Congratulations for finding an investor in your new business.
There are 2 scenarios to consider when determining the share allocation of your investor.
Scenario 1 : Where your partner and yourself is also coming up with capital for the business.
This is a simple matter of adding up everyone’s money, register it as your share capital and everyone gets a share of the business equivalent to the percent of the money that is forked out.
Here, I am also assuming that your partner and you are running the business and not the investor, so in order to justify your additional effort, you and your partner should get paid monthly for your efforts. This should offset the drastic difference in dividend payout at the end of the day. (assuming this investor is the major shareholder)
Scenario 2 : Where your partner and you are not coming up with any capital.
In this case, you will have to negotiate with the investor how many percent of the company does he feel justified owning with the money that he is coming up with. This is a negotiation process that needs to be weighed against your own expectations and be completed before accepting the investment money in order to avoid any frustration and unhappiness.
Business, especially with money which is not yours, can be very complicated as you will find yourself dealing with the investor and your partner more often than you are dealing with the business dynamics itself. This is especially true when your business gets profitable… which is also when 80% of all startups break down and break up… be forewarned. I had been where you are now and have suffered the consequences of having a profitable company completely break down because of strifes between shareholders.
I completely gave up doing business and switched to investments for a living and found a lifetime of wealth and the ability to retire young and rich at 28 years old. Read about my story at
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