Questions

A business partner I want to bring on is willing to invest more than I am at this stage in the business, but I will be more actively involved in the day to day operations. I want to give him 40% of the company and I retain 60% ownership.. Can somebody advise whether this is in normal practice and reasonable? I've never opened a business of this scale and have never brought on a partner to this capacity.

One recommendation is to actually evaluate how much your company/idea is worth. Figure out the numbers first (maybe pull in a financial adviser or an expert in evaluating your type of venture). If you realistically evaluate your company at 1 million dollars and he is investing 10% of that, then he would be entitled to 10% equity in the company.
The risk of giving too much away at the beginning (i.e. giving 40% away for only 10% of the funding) is that when you do need more money, you may need to find an additional investor. Now your investors each have 40% and you have lost control of your company. I recommend doing a little more homework on what your company is really worth. Otherwise, ask him for a loan instead -- until you understand the value of your business.
Whatever you decide - make sure you have a written contract with exit strategies clearly outlined. (i.e. what are the steps you agree to do if the business doesn't work out, or if one person wants out).


Answered 6 years ago

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