How much equity should I give away angel round?

The general rule of thumb for angel/seed stage rounds is that founders should sell between 10\% and 20\% of the equity in the company. These parameters weren’t plucked out of thin air, they’re based on what an early equity investor is looking for in terms of return.

How much equity do I need for friends and family round?

Typically, these investors are individuals willing to invest anywhere between $10,000 and $150,000 of their own personal finances because they feel loyalty and affection for the founders or are motivated by their startup idea. This type of early-stage financing is commonly referred to as a “friends and family” round.

How do you do a friends and family round of funding?

How to Raise a Friends and Family Round

1. Valuation, Sort-of.
2. Understand the Types of Investing and Funding.
3. Don’t Over-Dilute Equity.
4. Develop Term Sheets and Repayment Plans.
5. Determine How Much You Need.
6. Build Your Business Plan.
7. Hone in on the Right People.
8. Ease Them In.

What is a disadvantage of a friends and family loan?

Any misunderstandings about the arrangement can damage relationships. There is a risk your investors may offer more than they can afford to lose, or that they will demand their money back when it suits them but not your business. They may also want to get more involved in the business, which may not be appropriate.

How much equity does an angel investor get?

Angel investors usually take between 20 and 50 percent stake in the companies they help. Sometimes the exact amount is determined strictly by negotiation. However, frequently angel investors use a company’s valuation as a measure for how much ownership they should take.

How much equity should I dilute?

If you give away too much to attract specific people, you end up diluting yourself and your investors more than you need. Most startups reserve between 10 percent and 20 percent of equity for their option pools.

Is a higher company valuation better in the first round?

While it’s true that a higher company valuation in this first round will allow you to either raise more money than you had planned or hang on to more of the company ownership, it’s worth considering what a lower valuation offer might mean, especially in the long run. Let’s look at a pre-money valuation example.

How much equity do investors get from pre-money valuation?

Your negotiations have resulted in a pre-money valuation of $5 million. For this they are getting 20\% of the equity in the company. At a late point in the negotiations another investor comes in and offers you the same $1 million at a pre-money valuation of $8 million so they are only getting 12.5\%.

What is the difference between a $6mm and a $9mm valuation?

In the first example above your bar is $6MM, in the second it’s $9MM. While the money you raised was $1MM in both cases, the $3MM difference in valuation affects later rounds. This means you have to raise your company valuation to $9MM in order for the next round of financing to not be considered a down round.

What is the pre-money valuation for a series a round?

Assume you are trying to raise $1 million in this series A round. Your negotiations have resulted in a pre-money valuation of $5 million. For this they are getting 20\% of the equity in the company.