How Much Equity Should I Give an Investor for $100,000?

By Joel Arberman, founder of Prepared to Raise · 17 companies taken public, 30+ private placements prepared · Published November 9, 2026

The formula, and the number it depends on

Ownership = investment ÷ (pre-money valuation + investment). Everything turns on the pre-money valuation, which is the number investors will negotiate and the number most owners pick badly, either too high (nobody invests) or too low (the owner gives away a third of the company for a year of working capital).

How to value a small operating business for this purpose

Startups are valued on potential: revenue multiples, market size, comparable rounds. A service business with profits is valued on what it earns. The common approach:

1. Normalize earnings. Take the last 12 months of pre-tax profit, add back the owner's above-market compensation, one-time expenses and personal items run through the business, and subtract a market salary for the job the owner does. The result is what the business earns for its owners, often called seller's discretionary earnings or adjusted EBITDA.
2. Apply a multiple. Small businesses with one owner and under $1 million of earnings typically trade at 2 to 4 times that number; businesses with a team, recurring revenue and less key-person risk at 4 to 6 times; software or very high-margin recurring businesses higher. Business brokers in your industry publish ranges; your accountant has seen local deals.
3. Adjust for the raise. Investors are buying a minority stake they cannot sell easily, in a company they do not control, so expect them to argue the multiple down. Owners who are about to grow argue it up. The gap is the negotiation.

Worked examples for $100,000

Assume a business with $250,000 of normalized annual earnings.

• At 2.5 times, pre-money is $625,000. $100,000 buys 13.8 percent.
• At 3.5 times, pre-money is $875,000. $100,000 buys 10.3 percent.
• At 5 times, pre-money is $1,250,000. $100,000 buys 7.4 percent.

Now test it from the investor's side. At 10 percent, the investor's share of $250,000 in earnings is $25,000 a year if everything is distributed, a 25 percent cash yield, which is attractive. If the owner plans to reinvest everything and distribute nothing, the investor gets a piece of paper and a hope of a sale, which is not attractive at any percentage. That is why the next question matters more than the first.

Percentage of what? Common equity vs preferred units

For a business that will never be sold to a strategic buyer, a percentage of common equity is a weak offer no matter how it is priced, because there is no event that turns it into cash. The structure most service businesses use instead:

• Preferred units with a preferred return. The investor's $100,000 earns, say, 8 to 12 percent a year paid from profits before the owner takes distributions, plus a share of profits above that.
• A buyback or redemption right. The company can repurchase the units at a set multiple, often 1.5 to 2.5 times the investment, after a few years, so the owner regains 100 percent and the investor gets a defined return.

With this structure the headline percentage can be lower, the investor's return is clearer, and control stays with you. How to show a return without selling the company covers the mechanics; what percentage is fair for a $50,000 investment works a smaller example.

Mistakes that cost owners control

• Pricing on revenue because a startup article said so. A $1 million revenue agency is not worth $5 million. Investors who know small businesses will walk; investors who do not will later be unhappy.
• Giving a round percentage because it is easy. "Ten percent for $100,000" with no valuation behind it invites the next investor to ask for 20.
• Stacking small raises without a cap table. Three $100,000 raises at casual percentages can leave the owner below 50 percent before the business has grown. Keep a cap table from day one and model every raise through it.
• Ignoring control terms. A 10 percent investor with a veto over hiring, spending or a sale controls more than the percentage suggests. Read the rights, not just the number.
• Forgetting dilution of future hires. If you plan to give a key employee equity later, build it into the plan now.

Same percentage for every investor

Everyone in a round should get the same terms. Offering your brother-in-law 12 percent and your former boss 8 percent for the same money is how friendships and investor relations end, and it creates disclosure problems in the offering. Set the valuation once, document it in a one-page terms summary, and apply it to everyone. If the terms need to change for a later tranche, close the first round first.

Valuation is a decision inside a larger plan

How much you raise, from whom, under what exemption and in what instrument all push on the valuation. Decide them together, before the first conversation, as part of preparing the raise. The Readiness Assessment from Prepared to Raise includes a valuation range and structure recommendation in its written report; we never find or solicit investors.

Related questions

What is a fair percentage for a $100,000 investment in a small business?

Commonly 5 to 20 percent, depending on the company's normalized earnings and the multiple applied. The number should come from a valuation, not a round guess, and the structure (common equity vs preferred units with a return) matters as much as the percentage.

How do I value my small business for investors?

Normalize the last 12 months of earnings for owner compensation and one-time items, apply a multiple appropriate to your size and industry (often 2 to 5 times for a small service business), and expect investors to negotiate it for a minority, illiquid stake.

Should I give equity or a revenue share for $100,000?

If the business will not be sold, a revenue share or preferred units with a defined return usually serves both sides better than common equity, because it gives the investor a path to cash without a sale and lets you keep control.

Can I give different investors different percentages?

Not within the same round. Everyone should receive the same terms at the same valuation. Changing terms between separate, closed rounds is normal; varying them inside one round creates fairness and disclosure problems.

Where to start

Work through the structure choice in SAFE, note, loan or LLC units, then the size of the raise in how much should I raise. What questions investors ask includes how to defend the valuation when they push.

This article is general information for founders, not legal, tax or investment advice. Securities rules depend on your facts; confirm your plan with a securities lawyer before you accept money.