4 ms·

Not clear if "potential investor" is the $100K or a future round of investment. $500k is obscenely low for most companies, but not all. Are you building a lemo

Not clear if "potential investor" is the $100K or a future round of investment. $500k is obscenely low for most companies, but not all. Are you building a lemonade stand? An old expression is "any fool can sell a dollar for 90 cents." Your willingness to take such a low amount of money for a large amount of equity and control says a lot to future investors, and the news isn't good. Can I now also invest $400K for the other 80%? (I'd never see it again because with 0% of the company left to sell, you have zero financial reason to stay involved in the company). In the US, a modern day rule of thumb is $10M post money valuation for your first (seed) stock offering. Most states nudge you toward 10M shares for a corporation, the math is pretty simple for $1 a share. If you can legally revise that sale to maybe 1% of your equity, or cancel the old corporation and create a brand new one where that money goes into the new one at 1%, it'd be perfectly fine with most investors.

max_ 3y ago
Let us assume the $100k investment is enough to get the company to a stage of moderate revenue/profit or traction. What exactly would be the problem with this? Why would an investor refuse to invest in such a company (of course now at a higher valuation because company has significantly been de-risked)
- mchannon 3y ago
  No, let’s not assume that. $100k sounds like enough but it goes so fast. You’re betting a lot on a hunch. If you spin your $100k as a founder’s share, it’s maybe less toxic. But investors want to see their money again, and revealing a share sale like this with a straight face is the economic equivalent of your wearing white makeup, a red rubber nose, a checked jacket that’s three sizes too large and clashes with the tie and pants, and size-85 shoes. As an investor I’m taking a pass for this reason alone if you gave your first 20% away that cheap.

max_ 3y ago

Let us assume the $100k investment is enough to get the company to a stage of moderate revenue/profit or traction. What exactly would be the problem with this? Why would an investor refuse to invest in such a company (of course now at a higher valuation because company has significantly been de-risked)

mchannon 3y ago
No, let’s not assume that. $100k sounds like enough but it goes so fast. You’re betting a lot on a hunch. If you spin your $100k as a founder’s share, it’s maybe less toxic. But investors want to see their money again, and revealing a share sale like this with a straight face is the economic equivalent of your wearing white makeup, a red rubber nose, a checked jacket that’s three sizes too large and clashes with the tie and pants, and size-85 shoes. As an investor I’m taking a pass for this reason alone if you gave your first 20% away that cheap.