Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

Am I reading the following signs from investor correctly?

We are an Internet startup, and we're trying to raise a $100K pre-seed round from a private investor at a valuation of $2.5M. We already have a working prototype, but no customers yet, no patents, and no "sharks" on the team (no mentors either).
After two months of negotiations via a middleman (a mutual friend), the investor hasn't provided any term sheet and yesterday asked if the price/valuation could be reduced (to which my partner said "no"). On the other hand, according to the middleman, the investor is "excited" about this opportunity and wants to invest.

Now, my instincts scream out loud that all of the above signs are super-bad, including the supposed "excitement" (in my experience, a really interested investor would be more judgmental, critical, and nervous rather than excited). I argue that the chances for investment in this case are slim to none, and we should stop wasting our time on this investor (actually, I don't see any reason for an investment at this stage at all, but that's another story).

But my partner thinks that we are at "advanced stages of negotiation" and that the round will be closed soon on our terms.

Am I wrong to be pessimistic? Is is possible that my partner is right?

23 Replies

Jonathan Barronville
9
0
Jonathan Barronville Entrepreneur
Software Engineer at npm, Inc.
Hi, Dimitry.

Are you in the US? I don't know about other countries, but it seems bizarre to be talking to investors through a "middleman". AFAIK (from my own experience raising money and general knowledge), most competent investors (angel or VC) here in the US don't work this way. They work directly with founders. Typically, the only thing close to a "middleman" is the person who makes the intro (and immediately gets out of the picture) or, if you're not a founder, a founder.

Also, what have you been negotiating for two months if you have no term sheets from the investor?

Are you a founder? If so, why be forced to raise money if you don't think it's needed?

Lastly, if you're pre-seed, why the valuation? $100K sounds like a convertible note deal to me.

- Jonathan
Bill Wittmeyer
1
0
Bill Wittmeyer Entrepreneur
CEO Electronic Sensor Technology INC
You do not provide sufficient information to allow an informed judgement. Have you met with the investor? if so how many times? What was the tone of the discussions. What were the subjects. If there has been no meeting with the investor and all communications are through an agent you are on a hiding to nothing.
Dimitry Rotstein
0
0
Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
> Are you in the US? I don't know about other countries, but it seems bizarre to be
> talking to investors through a "middleman".

We're not in US, but I agree - that's a troubling sign too.
Actually, over the last couple of years I've encountered several "professional investment mediators" who promise to get an investment in exchange for hefty salary+equity (naturally, I've always refused to have anything to do with them).

>Also, what have you been negotiating for two months if you have no term sheets
>from the investor?

Good question.


> Are you a founder?

I'm not a founder. I just joined, but the terms are still fuzzy, so I used the generic term "partner". I do plan on becoming a co-founder, since I'm doing all the development work.


> If so, why be forced to raise money if you don't think it's needed?

My point exactly. I want to convince my partner to stop fundraising, but first I want to check whether my instincts are correct. I'm a tech guy, so despite my experience in several startups, investments are not really my field.


>Lastly, if you're pre-seed, why the valuation? $100K sounds like a convertible note deal to me.

Hmm, that's a good point too. I'll ask him.
Andrew Meadors
2
0
Andrew Meadors Advisor
Engineer, Software Test Group at Cisco Systems
Customers always create more value and traction. With a working prototype there's really no reason not to be beta testing with 5-10 small vendors. We know your product is bullet proof, but until it flies in the real world under actual customer stress, you're still blindfolded. Get some feedback from your clients, then you're much more confident in your idea, and when negotiating with Angels and Seed funds. Best -Andrew Meadors digirithm "Analyzing the world's data"
Dimitry Rotstein
0
0
Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
>Have you met with the investor?

No. I thought my partner have, but it appears that he haven't as well. Which is yet another bad sign, I guess.

> If there has been no meeting with the investor and all communications are
> through an agent you are on a hiding to nothing.

So I may be right after all. Thanks.
Hobart Birmingham
1
0
Registered Representative at Western International Securities Inc.
Agreed, convertible note seems more appropriate here. Valuation, given where the company is, appears high based on what you have written.
Larry Shiller
1
7
Larry Shiller Entrepreneur • Advisor
Grit: The new dimension in college admissions
Dimitry,
With all due respect, your last comment, "So I may be right after all" is troubling because it implies that you value being right over getting to success. You may reflect on your true goals in this business: Is it to be validated as a person or is it to create a product/service that is highly valued by your customers? Which of those things gives you more pleasure? But it's just a dot. If you haven't often had people tell you that you have a big ego my synthesis may be flawed.
Dimitry Rotstein
2
0
Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
> With all due respect, your last comment, "So I may be right after all" is troubling
> because it implies that you value being right over getting to success.

I think you misunderstood. I believe that we should forget about this investor (and fundraising in general for now) and concentrate on the product and the market. I intend to convince my partner of this. If I'm right, then this will greatly improve our chances for success. But if I'm wrong and my partner is right, then I will cause us to lose a certain investment.
In other words, me being right and getting to success happens to be one and the same in this case. Ego has nothing to do with it.
Aaron Baker
1
0
Aaron Baker Entrepreneur
Managing Director at Baker & Associates
Dimitry, Optimistic or pessimistic too much emotion. You said you don't need the money are you testing the waters? What do you plan on doing with the money if you get? Sounds like the team needs to get on the same page Identify milestones and create a plan with timelines before you start taking money with no plans for it's use. Anyway I think you're right I wouldn't be waiting to reel this one in the line is obviously snagged.Aaron
Larry Shiller
0
6
Larry Shiller Entrepreneur • Advisor
Grit: The new dimension in college admissions
Hi Dimitry,

I'm just trying to be helpful. Being actively open-minded, especially when it comes to one's ego, is really hard and often painful.

Please consider: If being right is not important to you but success is, why even mention whether or not you're right? Of what import is that (unless you welcome being wrong so you are pointed to ways to improve).


Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?