tech-company, equity, funding, investors, llcHave exciting proof-of-concept successfully demo’d to major worldwide OEM. Have initial personnel lined up to create prototype and first product, within 3-4 months.
Need kickoff money ASAP.
Have a few interested investors.
How do I structure % ownership of LLC for each investor? I’m thinking if I need X dollars and there’re 3 investors, then ask X/3 from each? Probably, increase what I ask for to maximum that I believe they will invest?
I think you’re starting at the wrong end of things, honestly. I would start out by finding out what each investor expects for their money. Are any of them going to be active participants in the company, or are they just the “dumb money”? If they have roles to play, what are those roles, how critical are their contributions to the overall project, and what would the value of their input be?
In essence, you’re better off letting the investors make the first move and set a percentage expectation, then you can negotiate from there. If you speak first then you may end up offering more equity than was expected, in which you’re walking away from your own money.
This can be an awkward phase of the capitalization process. Some investors base their percentage on how long they anticipate it will take to begin recouping their investment (the farther out, the higher the percentage, since there’s more risk plus their money’s out of circulation during that period). Others base it more on the perceived risk of failure for your project, especially if you don’t have any product or marketing data yet. Yet other investors will base their percentage on how desperate they think you are for their money. Every time I watch “Shark Tank”, someone’s on there talking about how they’ve mortgaged everything, invested all of their life savings, and their project will fail without money from the “sharks”. That’s just plain stupid. You have to deal from a position of strength and project the impression that while their money would be nice, you can go elsewhere unless they give you terms you can live with. If you can’t negotiate this way with investors now then you’re dog food, I hate to say. This is not the time to show weakness or lack of knowledge.
You need to be very careful here, and the advice of an experienced attorney would be of enormous benefit to you. If you don’t know what you’re doing (no offense, mind you) then you could do yourself great damage by not having professional counsel. Be careful, friend.
This is called a partnership. However,as the poster above said, you need to think this through more. The equity share is totally dependent on the situation and you should look at similar companies in your industry.
Always make sure that you, as the primary founder, have the largest share. Otherwise there will be tie votes and other drama.
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