How Much Equity Should You Offer A Startup Investor?

[@artist.pablo.urizar]

Thank you for this info! I have a company that is in its beginning stages and this was a question that I definitely needed more clarity on. Appreciate it.

[@Jonathanmillspatrick]

Glad the video helped. Good luck!

[@aldojansel9439]

Thanks for your vids!

[@ziggyc4474]

You welcome

[@blorebeast7371]

Sir i am gonna start a business and i have a single investor for my whole business. I dont know how mich equity i ahoukd deal with him as the business is a startup. The investor if from family, trusted one. Is there any possibke way to have 1v1 conversation with you?!

[@lindokuhlekalolo5377]

It did, thank you so much for this🙏💛

[@AcuraMDXTypeS]

So who’s responsible for the rent or payments ? The borrower ? And is that percentage payed at the end of the year ?

[@Jonathanmillspatrick]

Evening. Your question doesn't match the topic of this video. That said, the business should be paying all of its own bills. Investors are giving you money to cover those expenses, in exchange for ownership in the business.

[@AcuraMDXTypeS]

@ sorry, I just couldn’t find any resources. I have zero knowledge on the investors part. I’m trying to get information. I have a family member that wants to invest money in my business. Food Truck. How can I go more about this ?

[@Jonathanmillspatrick]

@@AcuraMDXTypeS no need to apologize. Being a resource is one reason I post this content. The amount of equity you give an investor depends on a lot of factors. If you, the founder, just have an idea and aren't injecting cash then you will have to give up more. If you, the founder, are injecting cash and time into the business then you'd give up less. As a generic rule of thumb, you should expect to give up to 25% for your first round of funding. At a minimum. Why? Because the investor is taking on a lot of risk investing in something that isn't live yet. You might check out my course, The Startup Funding Formula, where I walk you through more on this topic - jonathanmillspatrick.gumroad.com/l/startupfundingformula

[@AcuraMDXTypeS]

@ Ty very much

[@AcuraMDXTypeS]

Purchasing rn thank you for you help

[@ramakrishnanrp389]

If a investor invest in seed round in 15 percentage equity what is the thing I have to give them as a return as they give me money

[@Jonathanmillspatrick]

Their return comes if/when you are about to sell the business.

[@silver10188]

If i wanted like $50k for advertising my product, and found an investor. For how long should he keep the 20% equity? Is it forever? What if like four years from now, and the fund is consumed. Is he gonna keep getting 20% for the $50k he invested years ago? What if i needed another $50k from another investor? Am i gonna give another 20% ? This way I’ll end up with nothing.

[@JonathanPatrickMills]

Your initial investor would get 20% of outstanding shares at the time of their investment. Forever. Unless your agreement with them includes a buyback clause. If you need more money you would give up more equity. That amount of equity you give at each round of funding depends on the valuation of the business at that time. Most founders struggle with the idea of giving up large amounts of equity. But, investors are the ones that are risking their hard-earned money.

[@harperproduction3935]

@@JonathanPatrickMills Dear Sir thank you for this video, been on hunt for info & even watching as closely as possible Shark Tank to see if there is a model I can copy for my figures but in vain. But at least I now understand that the 15-20% for the 1st investor is kinda standard since they take the biggest risk, right. But here is my dilemma, if you don't mind. Our TAM is 30million. Financial revenues projected at $239,400,000 per month. Looking for $10million investment, what kinda of valuation is that? I saw a formula that says assets -liabilities= valuation. Which is fine, but at 15 or 20 % equity for the investor, what kind of CAP should I give???? Or have I watched too much fictional shark tank? 😄

[@Jonathanmillspatrick]

@@harperproduction3935 Thanks for the comment. A few things. If your TAM is only $30M then you could never do $239M per month in revenue. As for valuations, those are tricky. If you are at the idea stage and don’t already have some milestones accomplished then trying to value the company is very difficult. That is why most startups at a similar stage use a convertible note/SAFE.

[@psychurch]

Having a 20% equity stake from the seed round means the investor owns 20% of the company's shares at that time, not 20% of the income. Their financial return primarily comes from the increase in the value of their equity, which could be realized through dividends (if the company decides to distribute profits instead of reinvesting them), or more commonly, through the sale of their shares, either to other investors in future funding rounds or to the public through an IPO. The allocation of income to shareholders, in the form of dividends, is decided by the company's board of directors and may not directly correlate to the percentage of ownership.

[@ammaral-garmoshi7249]

Thank you for the vid! I have a question, I am starting a business soon and an influencer offered me free ads from him and his influencers friends. How much should I give up for such an offer? He has about 40 influencers and the deal is that they would advertise for free at least once a month. Also he asked for 50% of the business. He won’t do any work but offer this service. What do you think? Thanks!

[@Jonathanmillspatrick]

I wouldn't give them any equity for simply posting. Create a success-based incentive where they get equity for every X amount of revenue the generate.

[@ammaral-garmoshi7249]

@@Jonathanmillspatrick Thank you! What percentage would you say is fair if they bring in a X amount of sales? Or a range of percentages. My niece suggested he should get 50% of the sales that comes from the ads he would provide. Would you say it’s fair?

[@Jonathanmillspatrick]

@@ammaral-garmoshi7249 50% is entirely too high. You do not want a scenario where partners are equal. Because the reality is that no two partners will ever equally contribute resources, capital, skills, etc. I do like the idea of a revenue-sharing, instead of gifting equity. In that case, a revenue-share, I would consider giving the influencer similar rates as affiliate marketing, which is usually 10-30%. Keep in mind you will have other costs and giving away 50% of revenue would likely put you in the negative after you consider COGS, taxes, etc.

[@nathanaelkambaine387]

Thankyou for this vid. Is a 20(founder)/80(investor) share deal fair? He suggested I start the same business in multiple areas he is providing the capital. The split will be 20/80.

[@Jonathanmillspatrick]

The only time I've seen that type of split favoring investors is after multiple rounds of funding that created that level of dilution. If this is your first round of funding the average is around 80 (founder)/20 (investor).

[@benclare5324]

Hi, great video btw! I wondered if you may be able to advise if this is right? so I recently spoke with an investor for a start up investment, I was asking for £50,000 and they stipulated they wanted 80% equity from the start and they would set "milestones" for us to buy the equity back as we paid off the investment, now I'm new to the business scene and I have no capital of my own, or anything of value to hold against the investment, so I understand this would be a strong gamble for the investor, but my business plan is strong, and I feel 80% is alot to ask for, am I right in thinking this way, or is 80% acceptable due to the circumstances of me having nothing to put against the investment and the fact I have no previous experience in running a business? Any advice on this would be greatly appreciated thanks in advance

[@Jonathanmillspatrick]

That’s a loan, not an investment. The average founder gives up 15-25% in their seed round.

[@benclare5324]

Oh i see, so is 80% equity from a loan average then? Or is that still steep? Thank you for getting back to me btw I appreciate it.

[@Jonathanmillspatrick]

@@benclare5324 I would walk from this investor.

[@benclare5324]

Yeah I have refused the offer because it just wasn't financially viable, I just wanted to make sure that this wasn't an issue I would encounter too often, I got the feeling they were trying to take advantage of my lack of experience in this field, I'm currently looking into some free online business courses to become better versed in this area, thanks again

[@Jonathanmillspatrick]

@@benclare5324 its not free, but pretty affordable. jonathanmillspatrick.com/startup-funding-toolkit/

[@OkiiKenneth]

Is it possible for me to get investor or start up

[@Jonathanmillspatrick]

That's entirely too broad of a question.

[@deonrichardson5250]

Can you give an example of a startup who is looking to raise 85k? If the standard is 15 - 20% how does it work if it's more than one investor? Example: More than one investor would be fine with putting in 10k each rather than the whole 85k.

[@Jonathanmillspatrick]

Hi, Deon. It's all just math. Multiple investors would collectively take up that 15-20%. Keep in mind that is just a benchmark. It all depends on how much traction you have at each funding round.

[@aldiswann]

bro your intro song should be more 100x increased

[@BK-hq7tn]

I have headphones on and I jumped.

[@SadeeqPakee]

Is that 15%-20% equity forever?

[@Jonathanmillspatrick]

Typically. Your first investor is taking a big risk, so the potential reward needs to match that risk. There are instances where you can negotiate a buyback at a set rate of return.

[@farahfarah7786]

He lacks confidence

[@Jonathanmillspatrick]

Everyday.