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Last year we started a software firm, we have managed to build a good technical team and do a couple of projects which helped us hang around. Recently we had an offer from one of the investor to invest up to 220k and also assist in building up contacts and business. Currently our firm has got 5 working partners. We are building some products in parallel other than concentrating in service sector which is not yet prototype complete. How much percentage share do you guys think that investors deserve in this firm? He expects 50% profit share and he is ready to leave majority of ownership/decision making share to us.

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This answer will give you a great start on how to divide up the equity in your firm and give you a framework on how to approach it.

Now, for your specific example, it looks like this investor expects 50% of the company because he wants 50% of the profit. I'm not sure that makes a whole lot of sense.

I would calculate how much you guys have put in (dollar wise) and then see what percentage his 220k would be. That would give you a good start on what percentage the new investor should get.

Also, read the answer above for some additional guidance.

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Thanks Jarie, Honestly our percentage is very less compared to 220k in dollars. But the fact that the company was running for last two years does'nt add any value? In future also the running partners will be running the firm. This is what I feel. An Investment will surely refresh the firm which is really required for this firm. But at the same time, when looking at the same deal in long term basis, 50% is discouraging for working partners. – Fayaz Jul 14 '11 at 15:39
I think fairest deal would either set it as 60% (working partners) and 40% for Investor Or for a fixed period (could be number of years or until a certain amount is recovered by Investor) the percentage will be 50 - 50% and then when the period gets over it become 40% - 60%. Is this a fair deal? – Fayaz Jul 14 '11 at 15:39
Don't discount your time and effort on this. You have built a brand and that's just as important as putting in dollars. 60/40 seems fair if that's what you guys want. Again, it's a question of the value of the business and how much adding the $220k increases it. I think the working partners should own more for now so that you can build up the business. – Jarie Bolander Jul 15 '11 at 12:58
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You should also consider what amount of effort you will put in the future. This is part of your share too, considering the investor is not going to put more money each month.

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