Question by ShadowASL: What percentage of a business do you typically have to give to an investor funding a business idea?
I’m going to be starting a business and I have a person that is willing to handle all of the development costs etc. Since it is an online business, the start up costs are pretty low for a business, under $ 10,000 definitely, probably under $ 5,000.
In this type of situation, what portion of the company is given to the investor?
Answer by SDD
In a TYPICAL venture deal (yours is not, of course, since it’s so small), it would be pretty common to give seed round investors 20-30% of the equity. Another way to look at it is that private equity investors expect to get 15x-20x their investment if the company is very successful. If your company (assuming success) might have a market cap of $ 1MM, then 20x on a $ 5M investment would only be 10%. It’s usually a negotiating process in any case.
What do you think? Answer below!