Question
A business partner I want to bring on is willing to invest more than I am at this stage in the business, but I will be more actively involved in the day to day operations. I want to give him 40% of the company and I retain 60% ownership..
Can somebody advise whether this is in normal practice and reasonable? I've never opened a business of this scale and have never brought on a partner to this capacity.
Answer
I have been through something similar in recent months. I agree with the above answers you need to set a valuation now. But you also need to set a valuation 2, 3 and 4 years out. Based on EBIT and a reasonable projection. More importantly you need to forecast how much more capital you will need. Take a hard look at what you need to do. Double it. Assume the next round will dilute both you and your co-founder. What will the picture look like after that?
