New Venture Lab: Equipping Christian Entrepreneurs

Question

How much ownership of a business does a typical angel investor get in a start up company?

Answer

It all depends upon the value of the company prior to the investment -- known as the "Pre-Money" value -- and the amount of money that the angel investor invests (the “Investment”).  After the investment and added together, the Pre-Money value and the Investment are referred to as the "Post-Money" value.  The formula for the investor's ownership is the following: Investment divided by Post-Money Value. 

Example: If the investor and the entrepreneur agreed through negotiation that the startup was worth $1 million at the time of the investment, then the Pre-Money value is the $1 million.  If the investor then invested $0.5 million in the startup, then the Post-money Value is $1.5m (the Pre-Money + the Investment) and the investor would end up with an ownership of one third of the company calculated as follows: $500,000/$1,500,000 = 33.33%.