Need some help with a business venture equity split

[Russian Bot v.2.1]

So a friend of mine, who founded (and sold) a financial analytics company in NYC, is trying to get me to go in on a hookah lounge/cigar bar in DC. His partner (who manages another hookah bar a few stores down) has already found the space, the distributors, and the proper licensing, but the space is still a shell and needs about $65-$70K to finish it.

I'm considering the offer to go in, but I'm not savvy when it comes to these types of ventures. They are asking me for $35K, or half the renovation costs, for an equity split. But I have no idea what a reasonable percentage is in this situation. The partner has very little of her own money invested so far (less than $5K--my boy has about $20K invested), although she wants 50% equity in the business, which I feel is not equitable since the risk is not spread out evenly among the parties involved.

So I need help from some of you business owners out there. I'm pretty sure I want to get involved because I think it's a great opportunity, but I don't know how to structure my investment so that I maximize my ROI while reducing risk. How do I structure my investment to accomplish those two goals?

Hook me up with some advice brehs.

 

[JahFocus CS]

Your friend's partner is bringing some industry expertise to the table, but for her to have put in only $5K and expecting a 50% equity stake is ridiculous. I would push for as close to a proportionate stake as possible -- i.e., however much you put towards the startup costs is your equity ownership percentage. You can put a slight premium on her expertise, so maybe she gets 15% if she doesn't want to put in more money, but no way should she get 50% IMO

 

[Russian Bot v.2.1]

Your friend's partner is bringing some industry expertise to the table, but for her to have put in only $5K and expecting a 50% equity stake is ridiculous. I would push for as close to a proportionate stake as possible -- i.e., however much you put towards the startup costs is your equity ownership percentage. You can put a slight premium on her expertise, so maybe she gets 15% if she doesn't want to put in more money, but no way should she get 50% IMO

Agreed. I think what I'll do is offer an equity buyback. Give her like a 10% stake with increasing ownership when certain performance metrics are met.

thanks for confirming what I was already thinking.

 

[Frangala]

So a friend of mine, who founded (and sold) a financial analytics company in NYC, is trying to get me to go in on a hookah lounge/cigar bar in DC. His partner (who manages another hookah bar a few stores down) has already found the space, the distributors, and the proper licensing, but the space is still a shell and needs about $65-$70K to finish it.

I'm considering the offer to go in, but I'm not savvy when it comes to these types of ventures. They are asking me for $35K, or half the renovation costs, for an equity split. But I have no idea what a reasonable percentage is in this situation. The partner has very little of her own money invested so far (less than $5K--my boy has about $20K invested), although she wants 50% equity in the business, which I feel is not equitable since the risk is not spread out evenly among the parties involved.

So I need help from some of you business owners out there. I'm pretty sure I want to get involved because I think it's a great opportunity, but I don't know how to structure my investment so that I maximize my ROI while reducing risk. How do I structure my investment to accomplish those two goals?

Hook me up with some advice brehs.

If $5K warrants 50% equity then the business as a whole is valued at $10K and yet you are being asked to invest $35K while your other partner is investing $20K that does not make sense. If $60K is the startup capital needed (35 + 20 + 5) then your 35K should warrant you almost 60% equity stake.

 

[Reality]

So a friend of mine, who founded (and sold) a financial analytics company in NYC, is trying to get me to go in on a hookah lounge/cigar bar in DC. His partner (who manages another hookah bar a few stores down) has already found the space, the distributors, and the proper licensing, but the space is still a shell and needs about $65-$70K to finish it.

I'm considering the offer to go in, but I'm not savvy when it comes to these types of ventures. They are asking me for $35K, or half the renovation costs, for an equity split. But I have no idea what a reasonable percentage is in this situation. The partner has very little of her own money invested so far (less than $5K--my boy has about $20K invested), although she wants 50% equity in the business, which I feel is not equitable since the risk is not spread out evenly among the parties involved.

So I need help from some of you business owners out there. I'm pretty sure I want to get involved because I think it's a great opportunity, but I don't know how to structure my investment so that I maximize my ROI while reducing risk. How do I structure my investment to accomplish those two goals?

Hook me up with some advice brehs.

What has their $5k and $20k respectively gone to for the business so far?