I and a partner are starting a new business with several paying customers and estimate the total value of the business based on earnings to be $2,500,000. An investor is interested in making a $250,000 investment. I understand the premoney valuation here would be $2,500,000 and the postmoney valuation would be higher. My question is: Do we assume there are 100 shares in the company to start and therefore the investor would get 10 shares, or 10% of the company to start? In other words, do we base the investors percentage ownership on the premoney valuation alone?

Topics: business, startup, law, investments, finance