Questions

I thought 5% to 7% of equity is more than enough for an investor in a startup that has the potential to be the next Facebook, Amazon or Google?

I thought 5% to 7% of equity is more than enough for an investor in a startup that has the potential to be the next Facebook, Amazon or Google? Why am I seeing others say 8% to 15%? That seems extremely high! Peter Thiel invested $500,000 into Facebook for a 7% equity stake. I am presently working on Project X, which many are saying has serious potential to become the next Facebook and possibly more of excuted well. I will be seeking capital from an investor, but this is the first time I am seeing that high of a number to give away for an angel or other investor at this early stage. I have been told the platform costs are $750,000 to $1,000,000, but we have presently talking to other firms that can develop the systems, and possibly at lower costs.

3answers

Theil invested 500k when Facebook had 9mn users. If you have that, you can raise way more and faster.
Historic examples don't help.

If you don't have anything developed, you can give away up to 15%, but the days of investing in companies who don't have a product market fit are pretty much over.
Only the hot spaces.


Answered 10 months ago

Just remember equity is a form of value exchange, always remember if you don't like the numbers you hear, negotiate. Sometimes, you don't know what you can get if you don't ask, that goes for both parties. However, since you do not have a product and don't have real numbers, even small-scale, your risk perception is likely very much higher, so to an investor coming in their money, currently (high value) versus equity in your company at current stage(high risk), equal a higher equity percentage, due to value perception. Risk/Reward factor! Reach out to me if you need more help!


Answered 10 months ago

I would ask myself what this angel/investor put on the table except for money. If it's just money, you can use some evaluation techniques to calculate how much he deserves. If you think he will promote to the company other than its money, I would build an equity structure that will make it happen. I have some concepts in mind, we can further discuss it.


Answered 9 months ago

Copyright © 2019 Startups.com LLC. All rights reserved.