Investor want high stake and I need money
I love startups but have no prior startup experience. Till now I have only built stuff like mobile apps (as part time gigs) and worked as a consultant for many large enterprises. I have this new idea that I am perusing with great passion (for now) part-time (keeping my day job and only working 20hr/week) since 2 months.
An old friend of mine who is also an active investor in startups is willing to put in $50k as seed money for 40% equity in the company. He (investor) is also willing to provide help in marketing (although I have no knowledge of his marketing skills), other PR and his Harvard alumni contacts.
Right now I am the only founder working part time on this gig. I haven't approached any investors yet.
I am just confused if I should take the money. The state I am right now, could really use the money to hire people for parts of the project and speed up delivery.
According to his terms, I can continue my day job for 6 or more months or until the idea started getting traction.
What do you guys think I should do at this point?
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Do you _need_ that money? If not, then don't take it. – Torben Gundtofte Bruun 12 years ago
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I had ups and downs about needing the money and I feel things could be a lot better if I could get help in covering things I am not so strong at. – Xoail 12 years ago
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If you take this money, I think you'll be ousted in less 6 months. You'll inevitably make a mistake and that's when it'll happen. – Frenchie 12 years ago
2 Answers
$50k for 40% might sound high, but, you're a first time, single (part time) founder, with (apparently) no product, or customers. The risk is almost entirely in the part of the investor.
I'd say you're pretty lucy to be getting an offer - but accepting at 40% will make further rounds difficult. Perhaps you could talk to the investor about giving back some of the equity when certain milestones have been reached (in order for you to use it to attract next investors/team).
Since you need his skills and his money and he wants a significant chunk of your equity, he'd make a much better partner than investor.
Treat entering a partnership with at least as much care and thoughtfulness as entering a marriage. If you can't work out a partnership, I'd pass on an investor at those percentages.
