One of the key things to be familiar with as angel investor is the concept of ownership. In simple terms, it means, that angel investors invest their money and in return, they receive a stake in the company, which is also called equity.
The percentage of equity that angel investors receive when investing in a startup can vary widely depending on several factors such as the stage of the company, the amount of funding raised, the valuation of the company, and the negotiation skills of both parties. As a rule of thumb, you can assume that early-stage startups may offer higher equity stakes to attract angel investors, while more mature ones might offer lower percentages due to proven concepts and traction.
Angel investors typically aim for a stake, ranging from 15% to 20% of the company. Sometimes the percentage can even go as high as 25%, however, it is important to understand that a higher stake doesn’t necessarily equate to a higher chance of big returns.
As a startup grows and raises more capital, the founder needs to be able to sell equity to future investors and employees to ensure the growth and development of the business. If too much equity is sold at the beginning of the fundraising journey then this could have significant negative consequences on the future of the startup. Below are further examples of how much equity should be given at each stage of fundraising.
Seed Round: Once angel investors have participated in the pre-seed round or friends and family round, early-stage venture capitalists usually participate in the seed round. They may collectively aim to acquire anywhere from 15% to 30% of the company, depending on the valuation and the amount of funding raised.
Series A: In the Series A round, the company has usually demonstrated some traction or proof of concept. Venture capitalists at this stage typically aim to acquire around 20% to 30% of the company.
Series B: By Series B, the company has likely achieved significant milestones and is scaling its operations. Investors in Series B target around 15% to 25% of the company.
Series C: By the time a company reaches the Series C stage, it’s usually well-established with a proven business model and significant revenue growth. In Series C, investors might aim for around 10% to 20% of the company, though this can vary based on factors such as the company’s valuation, its growth trajectory, and market conditions.
Series D and Beyond: In later rounds such as Series D and beyond, the company is often aiming for further expansion, market dominance, or preparing for an exit event like an IPO or acquisition. At this stage, investors may seek a smaller percentage of the company than in earlier rounds. The equity stake targeted by investors in Series D and beyond could range from 5% to 15% or even lower, depending on the company’s valuation, funding needs, and strategic objectives.
This guideline on how much equity should be sold by founders at each stage of the fundraiser shows how important it is to not give away too much equity at the beginning of the fundraising journey.
These percentages are not fixed and can vary significantly based on the specifics of each deal, the competitive landscape, and market conditions. Overall, the percentage of equity acquired by an angel investor can vary based on several factors but it usually ranges between 15-20%. A higher equity stake doesn’t always mean a higher chance of a bigger return. Founders need to ensure they have enough equity to ensure sustainable growth of the business as new investors come on board and to incentivise valuable employees.
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