Loading...
Answers
MenuIf someone proposed a deal with me to control 60 percent of my company, and I had the remaining 40 percent, is that a good deal?
If someone proposed a deal with me to control 60% of my company and I had the remaining 40% is that a good deal considering my company not bringing in enough revenue? Included in the deal are resources to media equipment and business training to help me become a stronger salesmen.
Answers
Do you want a job instead of to be an owner?
No way! Read "How To Get Rich" by the dear departed Felix Dennis, who did not have to sell a single copy of his book because he was already bloody rich. (Compare/contrast against so many other "gurus".) You'll read that he says not to give one single % of equity away.
Without 51%, you are no longer in control. If you want someone else telling you what you can and can't do with the company you created...if you want a job or worse because they can limit you to being a silent partner or consultant now that you are just a minority partner with a few rights...go ahead.
You can do this some other way.
I cringe at the cookie-cutter replies to this question. There is no right answer. It depends on the stage of your business and who the investor is.
If you're at seed stage and an individual angel investor is asking for 40%, sure, that is a deal breaker and you won't be "investible" afterwards as your cap table structure will be screwed. So that's a no, in principle. Even then, it's not a hard no. Do you really love your company and want to lead it during the next 10 years, or are you comfortable with answering to someone else and maybe even leaving after a few years? These are radically different situations. And even if you love your company, if you don't have a choice you might have to take the deal. But search for better terms from someone else first.
If, on the other hand, your company is bigger (Series B, Series C, etc) then it might be useful to bring in someone for a large chunk of equity - a venture capital, for example. Just be aware of the perils of this, which most founders aren't. Venture capitals are affected by whims (personal investor problems, need to give returns on a given year, and so many more random factors) and they will probably polarize your business model - they will try and force you to go for a billion-dollar exit with less chances than a reasonably profitable company - because their whole business model is based on that.
Give more info on the specific investors, your vertical, situation, financials and other terms you've obtained and I can give a more in-depth answer.
I have been at C-level, as well as co-founded, founded, and advised many startups at various stages of their maturity cycle. What I have discovered (not just in startups) is a "good deal" depends on what you "really" want out of this deal. There's no quick answer to this and requires some examination of how you got to this situation and what you want to get out of it, both short and long term.
Is control of something that's not growing fast enough and needs more resources and expertise the key? Is the new equity investor bringing value that will increase the value of the entire company? And most important, what kind of partner do you want? Read the Founder's Dilemma, figure out what you want and then negotiate around that as equity/control and ownership aren't the only thing of value.
Separately, having done investment banking back in the day, there are lots of capital structures where you can maintain control whilst still bring in a partner.
Reach out if you need more advice.
There is no right answer, it depends on where in the cycle you are in. Bill Gates ended up with just 31% of Microsoft by the time it went public.
But in an early stage, you want to give as little as possible and keep as much of the voting stock as possible
If you want to maintain control over your company then you must keep 51% of your company. It is really up to you and what you want out of the deal. It also depends on the stage of your company. I would highly recommend getting a very good lawyer to ensure you don't get screwed! I have seen this go bad for so many startups.
Realize that, if you give up more than 50% in your company, then effectively you are selling your company and it is no longer yours.
So, the other person doesn't have 60% of your company. You have 40% of his company. He calls the shots. You are a junior partner/employee.
Related Questions
-
As a startup, is it better to find a way to pay for services (i.e. design) or trade equity for it?
Before I get to your question, let me give you a tip: always aim settle questions of payment before the work happens. It is ten times easier to agree on a price beforehand, and having done that doesn't stop you from changing it by mutual agreement later. The problem with paying cash is pretty obvious: you don't have a lot of it. The problems with paying equity are subtler. The first one is that early-stage equity is extremely hard to value. A second is that equity transactions require a lot of paperwork. Third is that entrepreneurs tend to value their equity much higher than other people would; if not, they wouldn't be starting the company. And fourth, people like designers are rarely expert in valuing businesses or the customs of of startup equity valuation. In the past, I've both given and received equity compensation, and it's a lot more of a pain than I expected. In the future, what I think I'd try is convertible debt. That is, I'd talk with the designer and agree on a fair-market wage. E.g. 100 hours x $100/hr = $10k. The next time we take investment, the $10k turns into stock at whatever price we agree with our investors, plus a discount because he was in before the investors. Note, though, that this will increase your legal costs and your deal complexity, so I'd personally only do this for a pretty significant amount of work. And I'd only do it for somebody I trusted and respected enough to have them around for the life of my business.WP
-
A tech startup fully outsourced. What problems would be in this situation?
The ideal way would be to hire the engineer while the project is still under development. You and the engineer should follow up with the outsourced partner in the process. This will give hold to the engineer and later more staff can be trained in upgrading or follow on versions of the product/service.SM
-
What legal precautions can I take to make sure nobody steals my startup idea?
I've discussed ideas with hundreds of startups, I've been involved in about a dozen startups, my business is at $1M+ revenue. The bad news is, there is no good way to protect ideas. The good news is, in the vast majority of cases you don't really need to. If you're talking to people about your idea, you could ask them to sign an NDA ("Non Disclosure Agreement"), but NDAs are notoriously hard to enforce, and a lot of experienced startup people wouldn't sign them. For example, if you asked me to sign an NDA before we discussed your Idea, I'd tell you "thanks, but no thanks". This is probably the right place though to give the FriendDA an honorable mention: http://friendda.org/. Generally, I'd like to encourage you to share your Ideas freely. Even though telling people an idea is not completely without risk, generally the rewards from open discussions greatly outweigh the risks. Most startups fail because they build something nobody wants. Talking to people early, especially people who are the intended users/customers for your idea can be a great way to protect yourself from that risk, which is considerably higher than the risk of someone taking off with your idea. Another general note, is that while ideas matter, I would generally advise you to get into startup for which you can generate a lot of value beyond the idea. One indicator for a good match between a founder and a startup is the answer to the question: "why is that founder uniquely positioned to execute the idea well". The best way to protect yourself from competition is to build a product that other people would have a hard time building, even if they had 'the idea'. These are usually startups which contain lots of hard challenges on the way from the idea to the business, and if you can convincingly explain why you can probably solve those challenges while others would have a hard time, you're on the right path. If you have any further questions, I'd be happy to set up a call. Good luck.DK
-
What is the best way to write a cover letter to an early-stage startup?
Better than a cover letter is to actually proactively DO something to help them. It'll show them not only that you've researched them, but you're passionate about the startup and worth bringing on. A man got a job at Square early on for just making them a marketing video on his own (back before they had one). Since you're a web designer, design a stellar 1-pager that's targeting their message to a particular niche. Something they could use on social media or something. If they're like most startups, they're not interested in reading cover letters. They're interested in passionate individuals who can add value to the organization.AS
-
What happens to a convertible note if the company fails?
Convertible notes are by no means "earned." They are often easier to raise for early-stage companies who don't want to or can't raise an equity round. Equity rounds almost always require a simultaneous close of either the whole round or a defined "first close" representing a significant share of the raised amount. Where there are many participants in the round comprised mostly of small seed funds and/or angel investors, shepherding everyone to a closing date can be very difficult. If a company raises money on a note and the company fails, the investors are creditors, getting money back prior to any shareholder and any creditor that doesn't have security or statutory preference. In almost every case, convertible note holders in these situations would be lucky to get pennies back on the dollar. It would be highly unusual of / unheard of for a convertible note to come with personal guarantees. Happy to talk to you about the particulars of your situation and explain more to you based on what you're wanting to know.TW
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.