Raising equity can be a big deal for many firms. 
A lot of thought goes into what stake will the investor get for the capital they put into the company.

 

However, there is another important piece of the puzzle which usually is not thought about. 
What share of equity will management have? 

 

Percentages can vary, but a good range could be from 10-20%.  This could be earned over time.

 

Usually when an investor is putting in this kind of stake, it’s for a company with growth prospects that will expect to add some additional people to the management team.  Even key management people who are already there may warrant getting additional equity over time for their role in helping develop the business.

 

If you leave this out of the equation in your thinking, then you will probably overstate the return that your business will generate for the investor and underestimate the stake that the investor will need in your business.  You may get surprised when you see their proposal on what equity stake they will require.

 

Another reason to factor this in is because any good investor will have it figured in on their end.  They might have a different number however.  You want to think ahead of time what your management team will look like in the longer term and what equity rewards they deserve.  You want to go to bat for your people.  Otherwise, they might end up with a lower stake.

 

Got an equity raise going?  Put management in the picture as well.  They are making an investment as well- their time.  You want them well rewarded too.