How much equity for a $10,000 investor?

Posted on Friday, August 7, 2009 at 3:05PM by

Jeff |

7 Comments

Gayle writes:

I've read your articles but first time I've been out to you site. Good Stuff!

Question: I am raising $35,000 capital for a start-up company (seed money/pre-start-up). I have an investor willing to invest $10,000 but wants 10% of the company (1% equity for every thousand). Is this typical with private/angel investors?

Also, will probably need some consulting down the road - have never taken a start-up through this. What are your rates?

Any and all info appreciated! Thanks!

The problem you have isn't really about what percentage should you give an investor, it's that $10,000 just shouldn't be structed as outright equity if you're a brand new startup. This should be structured as a convertible note, which I described a bit in this post about a new video game startup. Perhaps you can add a clause in there which says if the note has not converted after some period of time (say 5 years) that you can buy it out for a fixed amount, or then convert it to 10% equity. Depends on what works for you, and you didn't give me much info about the long term business plan.

On the other hand, you are well within the area that an SBA loan or commercial loan from your bank could address. Lending is tough these days, but you should pursue several options. For that amount you may also consider some of the online peer-to-peer lending services.

In any case, I would not say you should just start selling stock for a $10,000 or $35,000 investment. You need to let the business grow before you can accurately analyze its potential valuation.

Good luck!

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