Selling Equity to Family and Friends

Selling Equity to Family and Friends

July 17, 2020 by investor

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

Many startups use equity to fund their business. 

Equity is an ownership stake in a company. 

Equity aligns everyone’s interest in the startup. It preserves cash since it’s only paid upon the exit of the business, which is usually an acquisition by another company.

Startup valuations are noted in pre and post-money figures and help determine the investor’s equity ownership.

Pre-money — what the company is worth before the investment

Investment — how much the investors are putting in

Post-money — pre-money plus investment

Investors own an equity percentage equal to the investment, divided by the post-money.

You can also calculate ownership by using share prices.  

The share register of the startup should log how many shares have been issued to investors and other stakeholders. 

To determine your percentage ownership for your startup, divide the number of shares you own by the total shares issued.

You can ignore authorized shares for now.

There are preferred shares and there are common shares.

“Preferred” means that the holder receives certain rights or preferences with their shares. These rights provide the preferred shareholder protections, such as getting paid back first before common stock shareholders.

Common shares come with no special rights.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.