Ownership for Angel Investor
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%.
- November 14, 2011
- Raising Capital
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