I have recently been offered startup money from a family member for a business, in exchange for a percentage ownership of the company with the understanding that they will be a continued source of funds for at least the near future and then provide some labor and managerial support once the business takes off.
Without getting too much into the specifics of it, I would like to know more about valuation regarding a small business as it relates to an Angel Investor situation like this. Basically, What's fair? They are providing me with enough capital to make all my initial equipment and material purchases as well as some continuing education/professional training in the field. My initial thoughts are giving them 25% of the company seems more than fair considering potential growth, am I wrong?
Another question I have is: what happens if 3-5 years from now a future investor gives me, lets say, 5x the initial startup investment and wants a percentage ownership?
I have been watching Khan Academy videos that explain valuation for startups but it seems like valuation is more geared toward companies who are planning on going public and doing an IPO, and less helpful for cottage industry type operations. Do I have that wrong? Should I split the company up into, lets say, 100 shares and divide them up between us, and do a valuation of my assets (biz idea, and know-how)?
Thanks in advance!
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