How much money should I ask from an investor? (2024)

How much money should I ask from an investor?

If your company is early stage and has a valuation under $1M, don't ask for a $5M investment. The investor would be buying your company five times over, and he doesn't want it. If your valuation is around $1M, you can validly ask for $200K–$300K, and offer 20–30% of your company in exchange. Type of investor.

First, you need to have a clear idea of what your business is going to do and how it is going to make money. This will help you determine how much money you need to get started and how much you can realistically expect to make in the future. Second, you need to consider the stage of your business.

A fair percentage for an investor will depend on a variety of factors, including the type of investment, the level of risk, and the expected return. For equity investments, a fair percentage for an investor is typically between 10% and 25%.

However, some tips on asking for money from investors include being clear about how much money you need and what you will use it for, having a solid plan in place for how you will repay the investment, and being prepared to answer any questions investors may have about your business.

A lot of advisors would argue that for those starting out, the general guiding principle is that you should think about giving away somewhere between 10-20% of equity.

For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price. If you want to buy an investment property, the 1% rule can be a helpful tool for finding the right property to achieve your investment goals.

The silent partner provides their contribution. In return, they secure equity or partial ownership of your business (reflected in a percentage, e.g. 20% of your business). The silent partner steps back and lets you run the business. Once your business turns a profit, the silent partner receives 20% of the net profit.

There are multiple ways to pay back a business investor—whether in regular installments, with equity, or through a straight repayment. In some cases, an investor might not want their cash back!

Some pay income in the form of interest or dividends, while others offer the potential for capital appreciation. Still, others offer tax advantages in addition to current income or capital gains. All of these factors together comprise the total return of an investment.

In the early stages of a startups life, investors expect to see a return of 3 to 5 times their initial investment within 5 to 7 years. However, this is only a rough guideline, and actual returns will vary depending on the company, the stage of the company, and the amount of risk the investor is willing to take.

What not to say to investors?

Be transparent: Be open and honest about your financial situation and your need for money. Explain why you need the money and how it will be used. When discussing repayment terms, be specific about the amount of money you need, when you need it, and how you plan to repay it.

Verhaalen often recommends clients maintain a cash reserve that's, at a minimum, the equivalent of six months of income.

"Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."- Warren Buffet.

Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.

Silent partners are typically paid based on the amount of money they invest in a business and their equity in that organization. For example, if they invest a certain amount of money to secure a 10% ownership of the company, they would likely be entitled to 10% of any profits the business generates over time.

Due to limited liability rules, a silent partner may lose up to their entire investment in a firm but no more than that. As a hands-off partner, silent partners are often immune from legal actions taken against the firm and its management.

General ROI: A positive ROI is generally considered good, with a normal ROI of 5-7% often seen as a reasonable expectation. However, a strong general ROI is something greater than 10%.

A dividend is usually a cash payment from earnings that companies pay to their investors. Dividends are typically paid on a quarterly basis, though some pay annually, and a small few pay monthly.

What happens if you can't pay investors back?

If a company can't repay its investors, the consequences can be severe. The first consequence is that the company's stock price will likely plummet. This is because investors will lose confidence in the company and will sell their shares. Another consequence is that the company may default on its loans.

According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks. This is also about the average annual return of the S&P 500, accounting for inflation. Because this is an average, some years your return may be higher; some years they may be lower.

Most investors pay for properties in cash so you won't have the uncertainty that comes with a buyer applying for a mortgage. Even when a buyer has been preapproved for a loan, the lender can decide the buyer's credit-worthiness has changed and refuse to issue the funds needed to buy your home.

Individual angels usually invest between $5,000 and $150,000. A round of angel funding relies on more than one person. A typical round can bring in three to five different investors, with the total investment averaging between $100,000 and $250,000. The investors receive equity commensurate with their contributions.

Investors can sell their shares to another party too – the business itself. This is called a management buy-out, where a business' management team buys the assets of the business they manage. This is usually an exit strategy for larger or more mature businesses, as it tends to involve significant amounts of money.