Fundraising

15% Equity for 150k. Too much? Standard?

Shannon Code Chief Architect

December 16th, 2013

An angel investment site has an investment company listed that offers funding of $150,000 for 15% equity.
The small print seems scary:
http://www.kima15.com/media/KimaVenturesStandardTermSheetSeedSummitTemplate.pdf

Michael Barnathan

December 16th, 2013

It depends entirely on your company. $150,000 for 15% means that your company has a pre-money valuation of $850,000 (post-money of $1m).

The terms seem pretty reasonable / standard.

Izi Aviyente Head of Product Development at Kasaba Labs

December 16th, 2013

It really depends on what you think the valuation of your company is - this funding puts you at $1m valuation which could be low if you already have traction/revenue or even a product built. They are offering seed funding and I guess their "unique value proposition" is the quick turnaround - typically you wouldn't be able to secure funding so quickly. 

That being said, I would look for other options unless you are in very early stages and can't bootstrap. 

Alex Littlewood

December 16th, 2013

Shannon, it is becoming much more common to raise early money in the form of convertible notes. and YC recently released a standard called SAFE, which has very reasonable terms for notes. This would allow you to avoid a "valuation", which at  the early stage is a cumbersome process, and is often bulls**t anyway.  This approach allows you to easily get money to keep working, achieve traction, and then when things are going well and you're ready to scale, then you can raise a "seed round" which will enable you to grow. This will be more like $1-3M for 30% equity.

Michael Barnathan

December 16th, 2013

Seed rounds aren't usually that big.

Anonymous

December 16th, 2013

This seems like a sketchy middle ground between angels and accelerators. Giving up 15% at a $1M post-money valuation is a little dangerous going forward. You seed investors are going to expect to buy in 25-40% sweet spot, and you might be looking to raise appx $1M at a $3-4M post-money valuation. These are not fixed numbers by any means. Just an example.

Alex Littlewood

December 17th, 2013

Here's a list of recent seed investments from SV angel, ranging up to $6M 
http://www.crunchbase.com/financial-organization/sv-angel

Joanan Hernandez CEO & Founder at Mollejuo

December 17th, 2013

Hello Shannon,

The subject was already treated before here on FD on this thread.

From that thread a really important link arise with good information, take a look at it here.

Cheers!

Alex Murray

December 18th, 2013

That puts your effective valuation at $1m post-money. Sounds like expensive capital to me. You may want to read up on convertible note standard deals for startups. I think most of them come out to effectively put startups at $~4m post money. Anyone else have thoughts? Best, Alex