Structuing Equity Sale in Early Tech Startup


2

I have a few Angel investors, and a meeting next week with serveral VCs (brought to the table by the primary Angel), and I am trying to put together the equity sale package to present to everyone (VCs and Angels).

The Angels have agreed to put money in (i.e-a % of the cash need), but no agreement has been set yet on how much equity it will buy them. Here are some details:

Product: Software Platform (Saas)
Cash Need: 1.4M

I have a business plan, and vetted proformas that show a very promising EBITDA.

Question: How much equity is each dollar given at this early stage worth? Or maybe a better question is: How much equity are the Angels likely to expect for each dollar given at this stage???

I have no more money to put in, a prototype has been built(wireframe), and to take it to market and code the platform, I will have to have the investment.

Thank you so much for your advice!

Equity Angel Investors

asked May 12 '11 at 23:48
Blank
Entrepreneur
11 points
  • This initial Cash Need includes enough money to go to market, and become profitable, per the marketing plan and proformas... – Entrepreneur 9 years ago

1 Answer


3

From what I've seen, most angel-round investors are going to want at least 20%-30% of your company so that they won't get diluted out later on.

Most pre-product startups are not going to get a valuation of over $2M, so if you really need $1.4M to pull it off, you're looking at selling around 70% of your company. That is going to make it very challenging to raise subsequent funding.

There is no right answer for "how much equity is each dollar give at this early stage worth?" It all depends...

In the beginning, most investors bet on people and not your product or idea. If you have amazing people, you might be able to get $41M round without even having launched yet (Color.com for example)

A company in Boston called Smarterer just raised $1.25M in funding without a product or revenues, mainly because the CEO is the founder of venture backed BzzAgent.

If it's possible for you to do it, the best way to maximum your valuation is to build a working product, and get some customers to pay you for it.

answered May 13 '11 at 01:12
Blank
Andy Cook
2,309 points
  • Just adding my +1 to Andy's comments on the 20%-30% and the $2M comment. – Joseph Fung 9 years ago

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