I’m often asked, “What percentage of equity will a Business Angel want?” or “How much do I give away?”. I ran a Business Angel network for two years and this was the first or second question every entrepreneur asked. So, what is the answer?
First of all, selling equity is hard and will take a lot of time and energy. Imagine selling a dream to strangers. That’s hard. Right?
Well, that is what you are about to do!
There is no hard and fast rule about the amount of equity you will be selling in your first round.
However, there are factors that will increase the amount of equity the investor is looking for including distance to break even, protection against dilution in future rounds, ensuring their return on investment, their perception of risk of the venture and team, and how uncertain you appear to be.
Factors that decrease the amount of equity the Investor is looking for include evidence of sales to customers, equity held by friends and family, their evaluation of the quality of the management team, and how confident you are of success and fear of missing out.
There are many more factors that will influence the final offer.
For these reasons most first round equity sales end up with a total of 20-40% of all equity. This may be spread amongst several investors.
Remember, selling equity is not the only route to raising money – make sure you’ve checked out the SAFE, Convertible Notes, grants, bank loans and invoice financing first.