Paul Graham runs Y!Combinator a special seed-fund/incubator for tech startups.

He recently wrote an article titled The Equity Equation in which he shares his idea for a simple formula for entreprneurs to work out what is a good price.

The formula is:

1/(1 - n)

With the theory:

You should give up n% of your company if what you trade it for improves your average outcome enough that the (100 - n)% you have left is worth more than the whole company was before.

And he gives an example:

For example, suppose Y Combinator offers to fund you in return for 6% of your company. In this case, n is .06 and 1/(1 - n) is 1.064. So you should take the deal if you believe we can improve your average outcome by more than 6.4%. If we improve your outcome by 10%, you're net ahead, because the remaining .94 you hold is worth .94 x 1.1 = 1.034.

This could make simpler something that Dragon's Den has made famous - the negotiations over what percentage of the company an investor can buy for a certain amount of money - therefore determining the valuation of the company. But it might make the programme a little dull if the entrepreneurs just whipped out a calculator and did this little sum.