How much of a return should an investor ask for when investing in a company?

Compare your investments to how the S&P has done over the same period to see how you're doing. The market averages 10% in the long run so thats a decent minimum goal.

It depends on the risk, you can get 5% risk free and 6-7% practially risk free in bonds. So lets start at 7%

Is it a friend? Is it someone you know is going to succeed? Is it a stranger that you know little about? Is it a high risk business or do you know something about what the person is going to be doing? Can the person pay you (out of personal funds) if the company goes bankrupt?

I would start at 7% and start bumping it up for each bad answer to those questions, and leave it alone for each good answer. That should put you in a range of 12-20% and thats what I have seen in the past. The more risk you see the more they should be paying you and if you cannot agree then just turn it down and go get your 7%.

There are three models that come to mind when figuring the required rate of return for a company. While they use different techniques to come up with a percentage, the common theme is that they try to equate the risk an investor is assuming to the return they should require.

Take the Capital Asset Pricing Model. It adds the risk free rate (1 year t-bill is commonly used) to the firm's beta multiplied by a market risk premium (expected return on the market - the risk free rate). Another common method is the bond yield + risk premium method. This is a simple method that says "if the bond holders of this company are requiring X%, as a more risky equity investor, I should require X% + some additional risk premium."

A third measure is the dividend yield + growth method, which divides a firm's expected dividend by it's market price, then adds a percentage for expected growth rate.

There isn't one return that any two people will require. Every company has a different risk profile, and every investory has a different risk tolerance. This will create a unique risk/reward structure for every investor.