How much equity should an active investor get in an early stage of a startup?
I'm the only executive, I have 100% of the shares, I have 4 employees.I built the prototype on my own and I'm almost launching.
This person has intense experience in tech but not as an investor. Should I tell the investor how much capital I need and how much Equity I'm willing to give? Or should I wait for the offer?
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Respectfully, your question cannot be answered. You're not posting any specific numbers about valuation etc. And you're asking multiple questions in one. Please see the FAQ. – Jesper Mortensen 12 years ago
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I'm going to edit it. Thanks – Zapoo 12 years ago
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you and he should make some attempt to value the business - that is the starting point. – Tim J 12 years ago
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Tim, you are right! – Zapoo 12 years ago
2 Answers
As your question looks right now, I think this is a high risk situation. You don't seem to have tried this before, and neither does your investor.
The most important part is having a shared, common goal for the business. In the case of a typical VC-to-tech-entrepreneur deal, that shared goal is explosive growth followed by a sale of the company. You goal doesn't have to be the same, but you have to be clear about what it is, and that your investor shares it.
For the specifics of how to have an investment, the best book that I know of is:
The authors of that book are all very experienced VCs and entrepreneurs.
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We do share the same goals. We been chatting for a month. He is excited but no offer. He even asked me how much funds I need and how much equity he's getting in return? I said its better for him to tell me what he wants. Do you think I'm making it difficult for him? – Zapoo 12 years ago
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@Jay V : Your investor sounds inexperienced to me. I'm stretching here, but maybe he'd like you to make a proposal based on *a)* how much you *need* , and *b)* market valuations for 'similar' startups. But be wary, some people just want their opponent to make the first move, and then try to negotiate for a certain percent discount that they have in their head. – Jesper Mortensen 12 years ago
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Yes, it's so true. I was the first one to say upto how much equity I'm will to give him. He quickly countered and said the exact amount he would like. So I feel like he wants me to make the first move. – Zapoo 12 years ago
As your product is on idea stage, the risk is very high and so the shares of the investor will be. While starting up, the best option is to self fund your business if you can, because in seed investment, most people end up giving a large percentage of share in return of a small amount of money, and that causes problem when the startup need series B funding. Typically, you probably wont be owner of your own company and That is a hard fact.
You can refer to this http://www.forbes.com/sites/alanhall/2012/09/09/you-want-how-much-ownership-in-my-business/ Is says if your business is on idea stage, investors can rightfully ask for 50-80% of ownership.
If you can bootstrap your business, that will be the best option, or if you really need investment, you can first wait for the offer and then propose yours.
