If you know how much your company’s worth and how much money you need to gain through fundraising, you’ve already cleared two of the hardest startup hurdles. Now, you need to figure out how much equity you’re willing to sell to investors in an angel or seed round of fundraising.
Always remember that selling equity in your company inherently weakens the founders’ control over the business. If a founder self-funds the company with their own capital, they may not need to cede any amount of control because selling equity isn’t necessary. This, however, would be a rare occasion – nearly all startups sell some equity to raise the capital they need to kickstart the business.
So, how much equity should you sell to your investors?
The General Rule of Thumb
When it comes to selling equity in a startup during angel or seed rounds, the general rule of thumb is to start with selling between 10% and 20% of the company.
Investors know that most of their investments won’t return anything, but acquiring a slice of between 10% and 20% of a startup helps them strike a fine balance between risk and reward. Such a slice gives them a decent amount of influence in important decisions concerning the company. It can also give them a meaningful return on their investment if the business succeeds.
Selling between 10% and 20% equity in a startup is beneficial to founders as well. Not only does it help them remain in control of their companies, but it leaves enough slack to sell more equity in Series A or additional rounds of funding (if any are necessary).
Do You Need Startup Funding Guidance?
If you’re a founder of a small business, you know how hard it can be to be an entrepreneur – especially if this is your first venture. We at Duke Law Firm can provide the guidance and support you need to make sense of startup funding and deliver the service you need to protect your business interests.
For more information about how our attorney can help, contract The South Texas Business Lawyers online today.
Disclaimer: This article is made available for educational purposes only, to give you general information and a general understanding of the law, not to provide specific legal advice. By using this article, you understand and acknowledge that no attorney-client relationship is formed between you and The South Texas Business Lawyers, nor should any such relationship be implied. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
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