Often would-be entrepreneurs need to find a “partner” who can supply the cash they need for their business idea. The trick comes in how you value the cash of the investor compared to the sweat equity of the entrepreneur. StartupJournal has a good discussion on this topic:
What frequently happens is the working partner gets paid a regular annual salary, says Billy Ellyson, a small-business attorney in Richmond, Va. On top of that, he or she also gets a prenegotiated share of the ownership that usually hinges on how crucial the capital partner feels that person is to the business’s chances of success. It could be anywhere from a 5% slice of profits to 30% or more for those partners deemed as irreplaceable.
Notice that he does not say a 50-50 deal is likely! As a start-up, you need to be ready to give up a significant share of your business if you need a significant amount of cash. The negotiations are different if you are looking at expansion capital. Having an operating business and a proven concept allows you to bring more value to the deal in the form of a successful company and hopefully positive cash flow. It also puts you in a stronger bargaining position.