That’s my expectation of the future value of the stock that I’m not getting. And that’s not gonna be cheap 130 years of American Red Cross 1881 2020 thank you for the memories shirt. The question assumes a situation that is the reverse of how it should be done. In the question, you first give someone less equity, and after that, you get some money from the same person. In reality, you should first decide how much the money will be worth, in proportion to the other contributions to the new company, and assign equity accordingly.
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But you’re going to have to make that up in cash 130 years of American Red Cross 1881 2020 thank you for the memories shirt. And what you’re making up? The difference? If your company goes broke, in the first case (equity) your partner is broke too, but a conventional lender still gets to receive his 5k plus interest. So you’re sharing your risk. Note that the initial step is to know how much the company values before the investment. The only way you can attribute equity properly is if you have something like a valuation in your mind.
It does not need to be an official valuation, done by a specialist; just an agreement between the partners may be enough. There’s a lot of room in the first guesses. Don’t be afraid to make a guess, it’s part of the game, and sometimes is the only thing that you can do. But on the other hand, try to make the best guess that you can, because bad guesses can kill your business. As for ideas, although an idea may have some value, it’s not the same as the total potential value of the company, because there’s a lot of risks, and thus the idea alone isn’t that valuable. In fact, some people believe that an idea alone has zero value. As you build the company it becomes more valuable.