What % would be fair?

Hello Guys,

There is this concept I want to work upon and for that I have roped in an investor who is bringing 10k USDs on the table, the concept is mine and I am the one who's going to work on the same.

Now the investor is insisiting on spliting the co. as 55 (his) -45 (mine) % while I am on the vice versa, please let me know your thoughts on the same, What % would you think would be fair for both of us?

 

If he thinks 55/45 and you think 45/55, why not split the difference and make it 50/50?

 

Now even he is down to 50/50 but I believe as the concept is mine I should retain the controlling stake. Also I had suggested 55/45 until he gets the funding amount back and then 45/55 for him but he is not too keen on that

 

In the end look at it like this: Your idea without his money = ?. His money without your idea = ?

You will come to the conclusion that 50/50 is about as fair as it gets...

 

How bad do you need the money? Can you get it from other sources? Factor those into your decision.

 

He's providing the money, you're working the method and doing the tedious work. 50/50 is fair enough.
There shouldn't be any 45/55, or 40/60 and all that stuff.

 

I don't think 50% is fair at all, since you'll be the one putting in the effort. If you're sure it's going to work out, you're better of going for a bank loan.

 

You shouldn't think about what's fair and what isn't.
Only think about what brings you the most profit.
Is there someone else who is willing to loan you 10k? If there is try bargaining.
I mean hell the two of you wanna make money, so stick with what's best for you, since he's got the same mindset. People don't invest to make others rich, likewise you don't work to make other people rich.

 

You should be happy with 50/50 since all the risk is bear by the investor.

If the project fail,you did not lost even single cent.

 

How confident of your concept you are?
Are you offering any guarantees for your investor?

If you are not confident that your project will succeed and investor has no guarantee to get his money back it would be fair to offer him bigger stake, at least until he makes his investment back - after that maybe you could split it in half or something. If it all goes well you may be giving a large portion of profits to investor, but you would be getting the capital that you can then invest in your new project that you will control 100% and take all the profits, you might even sell your share of this project to investor at a later stage.

On the other hand, if you are sure that your project will succeed and you are willing to offer your investor a guarantee of some kind, it's a whole different story. Forget about being fair and get as much as you can. See what is the lowest percentage he would accept and if you're fine with it close a deal!

 

Thank you guys for all your insights

 

@Directory Vortex
I like your first thought. But when you talk about guarantee, what can he offer? I don't think verbal or even a written guarantee will work without a collateral. But if he has something of that value why not take a loan against it instead giving up the control. Could be an option.

@Fireurimagination

The reason investors want more share (more than 50%) is because they want the power to make decision. It is their money. If they don't have control over decision making, you could experiment with their money, burn all of it and walk away from the deal. But they will lose their money and nothing to show for it. Nobody wants to give their money to someone else with some level of control over it.

 

I think you want to much
Hi brings the money
Money talks
50/50 is fair ...

 

Well I think they should make a contract of some kind - I'm not sure the investor would be willing to give his money based on verbal agreement anyway. That would be only a great "take the money and run" opportunity for fireurimagination. So my idea of guarantee was to make an agreement that the investor will be given lets say 2 x amount of his initial investment within a certain period + 20% of profits form that point on, or something similar.
Well I've never been involved in any project investment, I'm not part of that world yet, so maybe my idea is a complete nonsense.
I certainly agree with your loan proposal, that would be my first option for sure. Maybe, if I'm totally confident I would even consider selling my car

 

you should share 50/50 han?

 

@ Directory Vortex

I am offering him something similar but he is not interested in the same and insisting on 50%, also I am offering him my other website(s) as collateral and out of 10k USDs probably only 50% will be risked. Also I believe if he doesn't have the required confidence in the concept or in me he is better off staying away from the same

One thing though the ROI will come after 8-10 months or so and his investment will remain locked for that period but we will keep on creating substantial value

 

If I were you, I would consider forming a C Corporation with you holding at least 51% of the shares. That would give you controlling interest and would give both you and your investor some good tax benefits as well.

Tip: Ask you investor what salary would he/she like to receive as, perhaps, President of the Corp.

 

If you end up at 50/50, then you are currently valuing your company/idea at $20k. plus or minus a little if you are at 45 or 55.

Using typical valuations in the market today, does that at all make sense? If you truly think you can net 2k/month starting in a couple months, then your value may be 2k x 36 (average multiple) = $72k. You are giving him a bargain at 10k for almost half.

I would try to use reasonable and conservative numbers you can back up and plead your case. Just because someone has an idea and the other $10k doesn't mean they are both (nearly) equal. But if you are at 45/55 or 55/45 already, then I agree you will likely end up at 50/50 or 51/49 in either direction. Trust at the beginning of a relationship makes a big difference. Sometimes being equal partners has lots of intangible advantages.

 

50/50 leaves a potential for deadlock taking the business forwards in the future. Although someone is financing you a fair bit of capital it still remains your idea and therefore I would say 51/49 split in your favour is sensible so that you have overall control of future decisions/direction.

 

I would set it up as a sliding scale investment meaning you start the company with a % he is happy but a number of shares can be bought back from him at an agreed figure. This should please both of you.

The problem with him having more than you want to give him with you doing all the work is you lose your enthusiasm and the business suffers as a result but if you are happy and have achievable goals then your targets can be met which is good for both parties.