Get Funding Without Giving up Your Company
Do investors want an enormous piece of the pie? Find out how to negotiate them down.
By David Newton • Nov 1, 2002
Opinions expressed by Entrepreneur contributors are their own.
Q:Investors want a huge percentage of my company. How do I reducethat stake in my equity?
A:Many business owners have recently inquired about how to get a morefavorable deal when giving up an ownership stake in their ventureto investors who provide the critical funding to make the businessa reality. How many times have you contemplated the $100,000 fromoutside investors who want a 40 percent equity stake in yourbusiness? Simple math shows that if $100,000 is 40 percent of thefirm's value, then the firm must be worth $250,000. Thesituation is made worse if no one has a clear rationale for why thefirm is worth $250,000. So if the deal negotiations simply pick arandom percentage, the business gets valued due to that percentageand the dollars invested. But that does not define the underlyingreasons for the company value, and that is a major problem forentrepreneurs to avoid.
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