Part 2 – Here is $100,000. How Much of Your Company do I get?

By this point, you should have a handle on the general timing of your milestones, your five year sales forecasts, and comparable M&A activity. If you are missing any of these, check the last two columns, as they are germane to this discussion, today.

As a general rule of thumb, early investors will expect, roughly, a 10x return on their investment in an approximate five year period from time they put the money in. Truth is, however, five year cash-outs, in today’s world, often end up extending to six, seven, eight or more years. In any case, set that fact aside, and stick with a five year horizon for our purposes.

So, if your investor puts $100,000 into your company, and you need to show a 10x return in five years, that means the investor will be looking for, approximately, a $500,000 cash-out. How much stock would he need to get now for that $500,000 return in five years? ...