What to be aware of, careful of when getting an angel investor


3

I recently started an LLC with a friend and we developed and manufactured a product, but we really need an investor. We do have a rich friend and he wants to invest, but we don't have a good idea on how to handle it.

What do we need to watch out for? What percentage of ownership is reasonable?

We started selling our product online and have spent only around $6,000 total. He said he thinks it will take $250,000 to really get this going. He has the money, but we don't want him to take over the company.

Any advice or ideas would be really helpful.

Angel Investors

asked Sep 8 '11 at 03:06
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Mike D
16 points

1 Answer


3

Well, it's not really all about what he thinks, it's what you think your business needs and is worth. It's pretty tough to set a worth for a startup. Here is how I would start if I were in your shoes.

  1. If you haven't already, start with creating a projected growth chart, including revenue, expenses and profits, for the next year or more. Write down how much you think your business will earn at the 1 year, 2 year and 5 year mark.
  2. Based on projected earnings, figure out how much more you need to invest in order to reach these goals. This gives you an idea of how much investment you need. May or may not be 250,000.
  3. Also based on projected earnings, you can give your business a reasonable value. Of course, the investor may or may not agree with how much you think it's worth, but I'll assume you both can come to a reasonable conclusion.
  4. Based on your business' worth and the required funding you need to reach your earnings goals, you can define the percentage of ownership the investor deserves.

PS. You can always structure a deal where the investor gets more share of the profits, but less input in how the business should be run, based on the type of stock you issue.

Hope this helps.

answered Sep 8 '11 at 05:59
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Nick
108 points
  • Step 1a. should be to write a business plan in my opinion. In the planning process, they will better learn what their business needs in terms of resources to succeed. – Bwasson 9 years ago

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