Investor Terms for Family

November 21, 2024
by a searcher from Ohio State University in Dublin, OH, USA
I am working on a deal with a 10% equity injection. The seller is giving a 20% seller note, and I am financing the other 70% via SBA loan. After considering many different investors, I decided to keep it in-family and only choose my mother as my only investor. I myself will be contributing 78% of the cash injection (8% of enterprise value). My mother will be contributing 22% of the cash injection (2% of enterprise value). My mother will want to give me favorable terms, and will, quite honestly, agree to anything I suggest. However, I don't want to take advantage, and I want to give her a decent investment.
Does anyone have any suggestions on what equity amount is fair? Using % of enterprise value multiplied by a 2x step-up, I could offer her 4%. Using pro-rata of cash injected (and considering my cost of searching and due diligence), I could offer 16%.
Also - is it commonplace to offer preferred returns, or is that unnecessary complication?
Thanks everyone for your help!
from The University of Texas at Austin in Austin, TX, USA
from Queens University of Charlotte in Charlotte, NC, USA