My co-founders and I just began searching for $1.5-2M of funding. We met with someone who has many contacts and friends who are angels or VCs.
After meeting with us, he surprised us by offering to:
My co-founders and I are new to raising funds, and thus don't know how to evaluate this offer.
Assuming that he's experienced with startups and raising capital, and has an extensive network of personal and commerical contacts, is this offer fair?
This arrangement is backwards. This is not the way legitimate capital raising works, at least in my circles. This sounds like someone trying to take advantage of you. I would stay away from this guy.
If this guy really believed in your company, let him invest in it.
If he does have "insider VC connections" that he can somehow "introduce you to," the very first question those VCs are going to ask him is: "Did you invest?" And he'll have to say no. And the most important thing to an investor is social proof: who else invested? This guy's value as an introduction plummets if he isn't also investing.
Once again: this is not the way legit startup fundraising works. This is the way slightly shady players take advantage of all the dumb startups that want to raise money.
If your startup is fundable, you'll find plenty of investors and they'll be fighting for a piece of the pie. The investors you encounter--at least, the legit ones--will all be begging for the right to invest in your startup, not demanding $1500 a month.
If your startup is not fundable, you won't find many investors anyway, and the investors you find won't be very well connected and will not position you to grow and raise more money.
Once again, and this is the most important principle: A legit player who believes in your business should be fighting for the right to invest in your business, not selling his services in exchange for a slice of the proceeds.
(edited) The problem is that this guy is not going to have any skin in the game. He is not doing anything for you and not taking any risk. He either wins a 3% stake in your company, or he loses--nothing. There's no reason for him not to do this same deal 100 times in hopes of "winning" a few of them... it's all upside.
This is exactly equivalent to the guy that says he has an insider connection in the Harvard admissions office, and he GUARANTEES to get your child into Harvard for $10,000. If he fails... you get your money back, 100% guaranteed. And 100 parents sign up, and he does nothing, and 20% of their kids get into Harvard, and he keeps $200,000 and returns the rest. And all those parents are thinking, "What's the risk?" And indeed, the risk is that your child DOES get into Harvard.
Congratulations on the exciting development for your start-up. Feeling confident to launch the capital acquisition campaign is a great place to be. You now have received your first unsolicited offer by someone who would like the money you have.
Based on my experience the amount of $1500/month plus board meetings deffered pending raising the money is fair. And based on my experience a 3% for raising the funds is fair.
There are lots of additional variables which should be considered as part of assessing this offer:
It sounds like you excited someone based on your presentation, and with some careful walking through the next steps you may have found yourself a great ally!
To start with, I would be fairly wary, I have been caught by guys who will "help you get there" ... They can extract a lot of money along the way and get 3% of your new investors money ...
On the flip side, as @Joseph says, it could be a great ally and the price tag looking back in 2-3 years may be cheap.
So it comes down to "how do you qualify them".
If they are serious and actually have the right contacts none of the above should be a problem.