

Ask HN: Your startup is worth 100.  So what is 51% of it worth? - wensing

Please don't respond with:<p>51 + [whatever control is worth to you].<p>Hard numbers.  Pretend someone approached you on the street and you had 10 minutes to answer.  Real business stories (with hard numbers) even better.
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notaddicted
Good Question.

It depends on whether someone is trying to buy the 51% or the 49%

Selling the 49%: 49 by what I assume the definition of "worth" to be.

Selling the 51%:

If: You think the buyer can run the company better than you Then: 51

If: You think the buyer can run the company tolerably well Then: 60 \- Extra
money to account for loss of control. Note that now the $$$ worth of the
company will be changed such that the new worth is 117

If: Don't think the buyer can run the company Then: Forget it, no price
Unless: You need to sell. Then I guess negotiate what you can get.

EDIT: I guess this is basically a formula based on the expected future worth
of the company, but I can't think of the expression at the moment.

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aidenn0
If I want to give up control of the company but still keep part of the future
profits of the company (which is basically what this question asks), it makes
more sense to just sell to a public corporporation for a mixture of cash and
stock. This is basically the same idea.

You get Money, give up control of the company, but also the rights to some of
the future value generated by the company. The waters are muddied a bit by the
fact that the corporation has existing business that affects the dividends
received, but in theory that's already priced into the stock by the market.

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mkuhn
I don't have a conclusive answer but a few inputs.

I think it drastically depends on the state a company is in. An established
business which is listed on the stock market probably has much less of a
markup for the 51% than a very young company.

Also, I don't know for sure about the US, but in Switzerland and a few other
European countries 51% don't give you full control over a company, 2/3 is
needed.

If I had to say what I would pay for 51% of a StartUp? I think I would pay a
markup which is within of my evaluation of the company.

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jacquesm
Well, 49% really would be worth 49, but to hand over control that is quite a
different kettle of fish. It very much depends on how much you trust the party
you are dealing with, to me if you sell 51% you might as well sell it whole in
most cases, so I figure 51% = 100 - (whatever risk you think is acceptable).

Not sure if that makes sense like that, but that's how I would do the
calculation. In other words, the risk factor determines to a large amount how
close to the 'real' value of the 51% we'd end, if I think the risk is large
(that the party that will now control the start-up will crash it or disappear
into the night) then I want it all now.

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brk
I'm not sure what you mean.

From an investment perspective you would ordinarily go through an exercise to
determine what the business is valued at. There are various tools and methods
to these calculation, but the outcome is that you get a mutually agreed upon
number.

One you've reached that stage, 51% of the company is worth 51% of this
valuation number. If your business is valued at $1,000,000 US, then 51% is
worth $510,000. Most investors would be happy to take 51% of the business for
some number LESS than this, but as a rule of thumb none would take 51% for
MORE than this amount.

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time_management
Why would you ever give a single investor 51%?

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brk
Because they paid for it?

Because you needed the money?

This is all really a hypothetical exercise anyway.

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time_management
Let's say the company's worth $1 million pre-money. To keep the analysis
simple, let's say I'm the single founder, even though it's unlikely that I
would be (single-founder successes are pretty rare).

In theory, I'd be willing to give up 49% for $1 million. In practice, I'd ask
for a better deal, given the risk inherent in taking on an investor. $1m for
40% I'd probably do, or $1.25m for 49%.

At 51%, however, he'd basically become my boss, and I'd be an equity employee,
so I'd consider it an acquisition and treat it as such. I'd negotiate such
terms as CEO job title, a salary, and severance. He'd probably refuse the
offer, and thus I'd end up going without his investment.

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app
51% == 100%

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trevelyan
Who downmodded this? This is the best post on the page. 51% means control of
the company. Which means control of revenues, hiring decisions, investment
behavior. You can own 49% of a very profitable company and never see a dime.
Nor make decisions about your own salary if you keep working on the thing.

Any offer to purchase only 51% is also insulting, being a transparent attempt
to pennypinch while getting total control. They think they can run the
business to serious profitability but don't think buying 90% is a good idea?

From the perspective of a founder, giving up 51% of a company is exactly the
same as giving up 100%. It is a sale and unless you're happy walking away and
doing something else don't do it.

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wensing
Thanks for the frank insight.

