Let's say we are talking about a seed stage startup that is going from idea to execution.
Here is the example- A seed stage startup receiving a $10K investment without equity or debt in exchange, and in return the funding source receiving a stock warrant to purchase about 16 to 18% of the company over a period of 5 years with predetermined valuations for each year. It is on a fully diluted basis, includes standard terms regarding net exercise, not-circumvention, etc.
To put this into perspective, if the funding source was to present an exercise option in year four, and the present valuation was $5M, the funding source would pay $1.5M to exercise the option.
Is the above acceptable? How do you see warrants as a method to fund early stage startups? Look forward to a healthy discussion.