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What is a reasonable percentage of equity that I should expect to give up to an angel investor in exchange for their investment?

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Could you update your question with responses to @JoshSamBob's questions? – JeffO Aug 25 '10 at 19:17
Yep, without those specifics there is no answer. – Jason Aug 25 '10 at 23:31

2 Answers

I'm not sure where to begin answering that question, without asking you a few dozen, including:

  • How much are they putting in?
  • What stage is the company in?
  • What kind of traction have you shown?
  • What's the valuation on the company going to be?
  • Have you or any of your co-founders shown a successful track record of taking a company from start to exit?

Without that information, it's hard to answer your question, other than saying, "Angel investments can garner anywhere from 5-50% of the equity in a company."

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To be able to assess the importance of the money you are getting from an investor, 1st you have valuate your company. This is not an easy task because several factors come into play. Once you have a logical value to which the investor agrees, it is easy to have a percentage of his share based on how much oney he wants to invest.

To valuate the company there are many parameters, here are some in random order. - You skills,competences and past experience. If you have successfully started companies before, or if you come from big companies like google or Microsoft, or if you have very good connections. All of this adds more trust in you and investors will believe that you will be able to succeed in your startup. Of course this adds points to the valuations

  • If your idea has a proven market and can be benchmarked with another successful company in the same niche

  • If you have already invested inyour own money in it. This gives more trust for investors that you are also risking your own money and not only theirs

  • The team you have assembled. The more experienced people with successfultracks the better.

  • If you have built a prototype that is starting to get acceptance in the market and you expect that more customers will be converging in

All of this will help you give a value to your company thus knowing what percentage the ivestor money will constitute.

You have to know that you might raise money from different investors and each investor will force his own valuation. That's what happened to Facebook: Microsoft valued it to 15bn$ and bought 2% shares while a russian investor valued it to 7bn$

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