How Much Equity Should You Give an Investor?

One of the most common questions when a business seeks investment is also one of the hardest to answer precisely: how much equity should the investor get for their money?

Short answer: The equity stake is determined by the relationship between the investment amount and the business's pre-money valuation — not by a fixed industry standard. As a rule of thumb, though, you should be cautious about giving away more than 20-30% in a single round, because you'll typically need capital for further rounds later, and your own ownership stake (and motivation) needs to be able to withstand further dilution along the way.

The maths behind the equity stake

The equity stake is calculated simply: investment amount divided by the post-money valuation (the business's value after the investment is added). If an investor puts DKK 1m into a business set at a pre-money value of DKK 4m, the post-money value becomes DKK 5m, and the investor's stake becomes 1/5 = 20%. Read more about how pre-money and post-money relate to each other.

Why you shouldn't just "give what's asked"

The more you give away in the first round, the less you have left to give away in the next rounds — and the smaller your own incentive to keep fighting for the business if your own stake becomes too small. Many founders underestimate how much their equity stake gets diluted over several investment rounds if each round gives away 20-30%.

Factors that influence what's "reasonable"

• How early in the business's life the investment happens — early investors take on more risk and typically expect a larger stake for the same amount than an investor coming in later with a proven business concept.
• Whether the investor contributes more than money — an active investor with relevant network, experience or expertise can justify a larger stake than a purely passive capital injection.
• How many rounds you expect to need to raise capital in — if you're planning several rounds, you should reserve room in the ownership for that from the start.

How to protect yourself

Always have the term sheet negotiated through with an advisor before signing anything binding, and make sure a shareholder agreement clearly describes what happens in future rounds. If you're unsure how to approach a specific negotiation, you can book a no-obligation call with us.