What Percentage of a Business Should an Investor Get?

There is no standard percentage that is fair in every investment. The stake depends on how much money enters the company, the value assigned to the company before the investment, and the rights attached to the securities. The SEC distinguishes pre-money and post-money valuation because the same quoted valuation can imply different ownership percentages. First clarify which number the proposal means.

Calculate the simple priced-round percentage

For a straightforward new-share investment, post-money valuation equals pre-money valuation plus new money. The new investor's initial ownership is the investment divided by post-money valuation. For example, a $250,000 investment at a $1 million pre-money value produces a $1.25 million post-money value and a 20% stake ($250,000 ÷ $1.25 million). If the quoted $1 million is post-money instead, the same $250,000 buys 25%. The SEC uses this distinction in its valuation example.

Check what the percentage does not tell you

The calculation assumes a simple priced equity round. Convertible notes, SAFEs, outstanding options, an expanded employee option pool, multiple investors, or different share classes can change the final ownership table. Also ask about voting rights, board seats, information rights, liquidation preference, and whether the investor can invest again to avoid future dilution. The SEC notes that preferred stock can carry rights beyond its ownership percentage. Request a before-and-after cap table showing every owner on a fully diluted basis.

Decide whether the deal works for both sides

Founders should compare the capital required for a specific milestone with the ownership and control they would give up. Investors should assess the business evidence, the chance of losing the full investment, and how long their money may be locked up. The SBA describes due diligence and the term-sheet process, while the SEC warns about the risks of private placements. A lawyer familiar with securities and company formation should review a real transaction before either side signs.

For the founder's preparation, see how to find investors for a business idea. For the investor's diligence, see questions before investing in a private business.