Think of equity as ownership in your company. The more shares an investor gets, the bigger slice of the pie they hold. So, how much of your precious pie should you give away? Buckle up, because this is where things get interesting.
There’s no magic formula, no one-size-fits-all answer. But here’s the deal: every time you hand out equity, you’re diluting your control. So, tread carefully!
What factors influence how much equity you offer?
- Investor’s contribution: The bigger the check they write, the bigger piece they might expect. Makes sense, right?
- Company valuation: Think of this as your company’s price tag. Investors consider things like your team, track record, market size, and growth potential to set this. The higher the valuation, the less equity you might need to offer for the same amount of cash.
- Stage of funding: Early-stage startups usually give away more equity, while later-stage companies can negotiate better terms.
So, what’s the “safe zone” for equity?
Traditionally, experts suggest keeping it between 10-20% of your total equity. Going above that can be risky, especially as your company grows and attracts further funding rounds, diluting your control even more.
Remember, this is just a starting point. Talk to other founders in your field, research similar companies, and get a sense of what’s “normal” for your industry. Ultimately, it’s about finding the sweet spot where you secure the funding you need while maintaining enough control to steer your ship.
Now go out there, negotiate like a boss, and remember – your pie is precious, share it wisely!
Author: Brian Oji