What's the average percentage share of investor
I am a new entrepreneur seeking investors. I need $4 million in capital to start my company. Investors came forward to help me with my required capital, but they are asking for 50% of lifetime share, which I found too high. Can anybody suggest to me what's the minimum and maximum percentage that I can give him for investing $4 million? Also should I have to pay for whole lifetime or just a fixed period of time?
-
Karz, respectfully, it is impossible to answer your question, because you're leaving out important information regarding how your valuation was made, and using strange words like "lifetime share". Additionally, there is no "average percentage" for outside investment. Please have a look at a the primer on equity and investment: http://www.brightjourney.com/q/divide-companys-equity – Jesper Mortensen 13 years ago
-
@Jesper - Thanks a lot for your information. – Karz 13 years ago
2 Answers
By offering 50% for $4M he is valuing your company at ~$8M. Nobody here can tell if thats fair given the information in your question. We would need to know your total value of stock, last three years operating proffit and your forcasts to even make a rough guess.
Unless you have a lot of stock or interlectual property attached to the business you would be looking at roughly 1M anual proffit to be valued in that price range. (Nb. Im not an investor. Seek proffesional advice if you want accurate estimates)
It's not clear whether your company is bootstrapped or very early stage, so I assume you're just beginning.
Giving away half of your company in exchange for $4M is just fine (even good) as you don't seem to have anything proven yet about your business. Keep in mind that your investors are implicitly valuing your company at $8M, which is impressive for an early stage company if you ask me. That said, it also depends on the actual terms that you must agree upon. It's not just about the money, but about the amount of control the investors want to have on your company and most importantly on subsequent rounds of funding.
-
So, should I pay 50% of life time profits to the investor? or do this have an end after particular repay. – Karz 13 years ago
-
They would have a 50% stake in the company. Therefore anything after paid expenses (profits) they would have a right to 1/2 of that if you paid out that money. Which most companies don't pay it all out. Also, 50% when you/if you sell. But no there wouldn't be a max amount. ALSO - 50% is good for 4Million, most would ask for a minimum of 51% in case they needed to bring in new management to get the company to the next level or growing faster. – Ryan Doom 13 years ago
