These days I am in process of raising 20k$ for my project (a facebook application), that requires at least 30k$ (10k of which I am able to come up with myself).
When negotiating with an angel investor he initially asked for 40% stake but I have succeeded lowering his offer to 25% (we haven't signed anything yet).
Does it sound like a good deal, or the percentage is too high?
Should I try to get the funding for 20% ? or maybe even lower ?
It may force me to go with another investor of course...
I saw that companies like yCombinator and techstars provide these amounts for as high as 10% stake, but I guess these deals are pretty hard to come by.
What do you think?
Any advice would be highly appreciated.
Equity Angel Investors Seed Funding
It depends a bit where you are based, and 25% for $20K is very expensive.
Think about it this way. You and the angel are putting in $30K for 37.5% of the company. That means your founder shares are worth $50K. Those founder shares are supposed to vest over four years, with the assumption being that you are going to work full time for four years to get the company up and going. That values your time over those four years at $12,500 per year. That might be fine if the company were paying you a full salary and the vesting of shares were a bonus on top of the salary ... but with $30K cash in the bank, I don't think you're drawing much salary.
Compare and contrast this to Y Combinator's $20K for 6.5% of the shares. This values the founder shares at $300,000. Split over 3 founders and 4 years that's around $25,000 per year. That's getting closer to minimum wage and is more believable.
Of course if you are in India, then $12,500 per year may be a good reflection of what your time is worth. If you're in the US, then you should expect as a solo founder to only give up around 10-15% of your shares for $20K.
Not from experience, but I guess from common sense(?):
If profitable, you can compare the ROI with other investment opportunities.
Oh, also remember that chances are that you gonna fail anyway (sorry!) - so equity is not that important. The experience (and failure status!) will most likely be your returns.
It all depends on how much total money you need. If you need like $1M to get your product done, then 25% seems kinda high. If you only need $80k to become profitable, then it might be a good deal.
In general, 25% for $20k is kinda high for a tech startup. Usually, people don't give away percentages but rather the angel round is a bridge to a bigger round (like the A round). That way, you don't have to set a value and you have more flexibility in raising more money.
Typically, the deal goes something like this: Bridge loan to the A-round with warrants (options for non-employee) kicker to make it worth their while (typically 20%).
I think the real question is what will happen in the next round.
Is $30K really enough for your project or just for the proof of concept?
If it is just for POC (business and technology) who will finance it later on?
The best answer would be 'clients'. In real life, too many cases end up with second and third investments.
So the real question is 'Is this specific angle a good partner for me? '
To be more detailed:
Do you trust this angle?
Will she/he help you when you need them?
Do they believe in the business?
How deep is their pocket?