Subscribe to Entrepreneur for $5

Get Funding Without Giving up Your Company

Do investors want an enormous piece of the pie? Find out how to negotiate them down.

This story appears in the November 2002 issue of Entrepreneurs Start-Ups magazine.

Q: Investors want a huge percentage of my company. How do I reduce that stake in my equity?

A: Many business owners have recently inquired about how to get a more favorable deal when giving up an ownership stake in their venture to investors who provide the critical funding to make the business a reality. How many times have you contemplated the $100,000 from outside investors who want a 40 percent equity stake in your business? Simple math shows that if $100,000 is 40 percent of the firm's value, then the firm must be worth $250,000. The situation is made worse if no one has a clear rationale for why the firm is worth $250,000. So if the deal negotiations simply pick a random percentage, the business gets valued due to that percentage and the dollars invested. But that does not define the underlying reasons for the company value, and that is a major problem for entrepreneurs to avoid.

Continue reading this article -- and everything on Entrepreneur!

Become a member to get unlimited access and support the voices you want to hear more from. Get full access to Entrepreneur for just $5!

3 months free with code ZENDESK

Presented by zendesk

3 months free with code ZENDESK