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How much equity should I give away?

An investor is willing to give me the startup capital I need, $40,000 to get my business off the ground.

My business is just an idea at this stage.

The investor wants 60% equity in the company. I would retain 100% control of the company in terms of decision making and buying etc. They just want 60% of the profit share.

I have no startup capital right now.

What should I do?

35 Replies

Ray Sturm
12
0
Ray Sturm Entrepreneur • Advisor
Co-Founder and CEO at AlphaFlow
Hey Karan - Run away from this person. Quickly. At best, he/she doesn't know much or anything about investing, if that's the proposal. If this kicks it off and you're successful, you'll raise a seed round that gives away another 20-30% of the company. At that point, you've got all the risk of an early stage business but you're working for others who own almost all of the company, so the numbers simply don't work. How to fundraise outside of this person is an entirely different conversation, but I'd run from this person. We dealt with someone like this in the early days of my first company, and it only got worse with time. It's tempting when you've got nothing yet, I know, but find another way.
John Seiffer
3
1
John Seiffer Advisor
Business Advisor to growing companies
Hard to believe that 40K would get an investable business off the ground. You could build a product for that and certainly launch a bootstrapped company. But to grow one to the point you'll get the investor a good return on their money, you'll need a lot more than 40K. If you give away 60% now what will you have to offer subsequent investors?

I have no idea what kind of business you're thinking of or what your experience is but I'd suggest you forget about "launching" and start talking to customer or prospective customers. Find out how valuable they feel like the problem you're planning to solve is worth. If yours is a B2B situation, you might even find customers who want your solution so badly they are willing to fund your development costs. It's a long shot but if you can't find people like that you may have a harder time launching the company than you think.
Jonny Wilkinson
0
0
Jonny Wilkinson Entrepreneur
Co-Founder at Equitise
It is not clear but this investor is clearly trying to get control. You will need to work out a potential valuation of the business and how much risk the investor is taking on, also what else they bring to the equation. Feel free to add me on LI and I am happy to Cheers, Jonny
Stephen Salaka
0
0
Stephen Salaka Entrepreneur • Advisor
Product Development Manager at Tsunami Tsolutions LLC.
Really depends on the total valuation you see in your company down the road. Does $40,000 seem like a good valuation for 60% of the company?
Marc Milgrom
0
0
Marc Milgrom Advisor
Business Manager at Bloomberg, LP
Bottom line: $40k for 60% values your company at slightly less than $70k. Unless you're living in an extremely cheap place, that wouldn't remotely be worth your trouble to build. So either you've chosen the wrong business, or your "investor" is clueless or unscrupulous. If the business is the lingerie one mentioned in your profile, start with your possible manufacturing partners and see if they are willing to provide credit or take equity to run samples and your first production run. Apparel manufacturing is a very competitive business so someone is probably willing to take a flyer on it for the chance of earning long-term repeat business, which a successful subscription service would guarantee.
Lawrence Bracco
1
1
Lawrence Bracco Advisor
President/COO GD Entertainment & Technology, Inc.
Lose his/her number. They are toxic. Call your relatives or look at crowd-funding.
kj shah
1
2
kj shah Entrepreneur
President at veryfine motels inc
Unless you have some cash of your own do not start any business. Learn to save cash and work out all small details of organization
Joshua Langenthal
6
0
Joshua Langenthal Entrepreneur
co-founder at San Francisco Flamethrowers
stop thinking about SELLING equity in your company as giving it away.
Mark Kim
2
0
Mark Kim Entrepreneur • Advisor
Managing Director at Jireh Ventures
I agree with what the good people on this thread are saying. Not sure how much runway you get for $40k, and you are much better off bootstrapping and getting your business more developed if you don't want to give away a good chunk of your equity.

That potential investor is not the devil though. If you have just an idea with nothing developed, you will give away a large part of equity. If you don't want to lose your equity, develop the idea more. Let me know how I can help.
Kevin Brophy
1
7
Kevin Brophy Advisor
Writer, Investor, Project Developer
Take it. Ask for her equity to be reduced to 50% if you hit C milestone, 40% if you hit D milestone, etc. Make it performance based.
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