how much should i give my investors?

Question

i'm offering a few friends and relatives a share in my business. i don't know how much i should give them. 10%, 20%, 50% of the total share? how does it work?

Answer 1

It depends, they are investing to share in the profits so first figure out your profit margin, replacement costs and how much you need to live on. Then you can decide how much to offer for sale.

Do not sell more than 49% in any case, that way it will always be YOUR business.

Answer 2

Depends on how generous you are, how risky the investment is to attract them and their contribution to the business. Example, the business costs or can be valued at 4 times net earnings. You need 50% of business value for expansion etc. They collectively give you 2 times net profits for a combined 50% share of the company. On another hand if you just wish to give them a part of your company you can do that also, it does have tax consequences, at some point ,I am not familiar with them. I would not give them more than a 50% share because then the control of the company is not yours. Maybe I misunderstood.

Answer 3

It's all based on their perceived risk of your business. They will expect a higher percent if your business is brand new than if it has a track record...new businesses are more risky. They will expect a higher percent if you have a controlling interest than if they have a controlling interest... where they have more control, they have less risk.

Make sure you are very explicit about what is expected of you and them. Sometimes a problem with unrealized business expectations can lead to problems with family and friends.

Answer 4

5% is more than plenty. or maybe split 5% amoung them.
If you get big they could still be rich.
Remember, If you grow enough you might need to sell some of those shares to venture capitalists.

So don't cut yourself short right out the gate.