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How much equity to give away in seed funding with pre-money $1.5m for $200k?

Have tested idea. Need $200k to launch and survive for initial long sales cycle. Pre-money evaluation is $1.2m. Seed investor interested to fund $200k asking for 14% equity. Am I giving too much equity right now?

23 Replies

John R Grizz Deal
1
0
John R Grizz Deal Entrepreneur
CEO at IX Power
Uh, ur new investor would own 200 out of 1.4 or 14.2%. Simple math. Sent from one of my iGrizz devices.
Mike S
0
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Mike S Entrepreneur
Director at Vector Analytics
Thanks John. I understand the math but is 14% fair or I should negotiate for 11%-12%?

M
John Seiffer
1
0
John Seiffer Advisor
Business Advisor to growing companies
Typically one negotiates about the pre-money valuation (this makes it easier to compare each round with successive ones). Frankly as an investor I think 1.4M is high for just a tested idea. If you have someone who thinks it's fair - go for it.
Alex Eckelberry
2
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Alex Eckelberry Advisor
CEO at Meros.io
Equity is all over the place. It's whatever you can negotiate.

I prefer to have angels convert to an A, perhaps with a 15%-20% discount.

But you get what you negotiate in this case.
Mike S
1
0
Mike S Entrepreneur
Director at Vector Analytics
John, perhaps I should give more context. I am in analytics space where typically the companies are evaluated at 1m +. I have committed sales worth $40k.


John Seiffer
0
0
John Seiffer Advisor
Business Advisor to growing companies
Well that's different. Committed sales is much farther along than a tested idea (depending on the definition of "committed") also if you're in a space where there's a typical valuation for companies at your stage, you don't need my opinion as an outsider. It would be like asking someone who doesn't drive if the kelly blue book value of a car is valid. I have not relevant opinion.
Robert Clegg
9
0
Robert Clegg Entrepreneur • Advisor
Game Based Learning Expert
Don't quibble on a percent or two. Seriously? You would lose the deal, ruffle the feathers on a few theoretical thousand dollars on your fictitious projections?

And make sure you give him incentives to participate in the next round.

I tell ya, if you had already given me your valuation and now want to change what you said, ...

Don't be greedy and stupid. You've got a long long way to go.
Mike S
0
0
Mike S Entrepreneur
Director at Vector Analytics
Robert, very helpful and thanks for being direct in your point. I was under the impression that I should protect every percent. I see your point. Also, he is bring smart money (contacts etc.) so you are right, I should not quibble on few points.
Ivan Mojsilovic
0
0
Ivan Mojsilovic Entrepreneur
CEO at Yanado.com
many people will tell you it's to much equity, but for your stage I think it's absolutely ok. Is it a big difference for you between 10% and 14%? I'm not talking calculating the worth of 4% when you company is valued 100M. I'm asking for this particular moment. If you don't really care, then just do it.
Steven Rahseparian
1
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Steven Rahseparian Entrepreneur
Founder & Chief Executive Officer at Secured Universe
If you can hold off a bit more, I would recommend getting additional commitments/letters of intent. This can increase your valuation and prove your business model. So now you are not just an idea.

Also, anything less than $1M, I would just go convertible note. It's faster, cheaper, less complex, etc.

As it stands, every startup is usually valued between $1 - 8M by valley standards and where you fall in the range depends greatly on how far along you are.

The more you can build your sales pipeline / pre-sales, the more traction you can prove and the more value you are building BEFORE you take money.

Hold out if you can and build more value, or alternatively, negotiate with the investor to give you the funds in small tranches as you need it, each tranch being priced base on your progress.

So instead of changing your valuation, take less, give less equity right now, build more value, negotiate next round. You save face, gain credibility for being savvy and investor will most likely like this approach too as it presents less risk.

Good luck!

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