Seed Funding Equity

Nov 2 33 Comments

My co founder and i are 22 years old. We are talking with a seed funder who also claims to want to be a “founding partner.” He wants to give us around 50k for 33.3%... What do you guys think?

keep in mind:

We have have not run a company before. We are creating a service/utility based app that has revenue streams coming from both consumer facing and business products. We have built and released games onto the iOS app store (non-revenue generating). We have ran our own small e-commerce businesses and managed employees. We are both fresh graduates with an engineering degree CSE and finance degree. We have been working on side projects since early on in high school together. We have some good connections with high net worth people. The app we are creating is not created yet and does not have traction.

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TOP 33 Comments
  • OpenTable Meliodas
    Do you really need the money right now? Can you build the app first? Can you bootstrap the app and not take any funding until you can prove it has traction?

    $50K for 1/3 sounds like a lot to give up at this point.

    Experience: founded multiple startups without losing money on exit.
    Nov 2 6
    • Cigna jodhpur
      Can you not just make a business/get a loan if marketing would be the main expense? Idk but just a thought
      Nov 2
    • OP
      I would say it would be extremely hard to get a loan as a 22yr old for something like this, just guessing
      Nov 2
    • OpenTable Meliodas
      Market organically and don’t give up equity for it. You should be able to get market signals for well under $1K.
      Nov 2
    • OP
      Thanks for the advice, what would u advise as far as marketing, any ideas
      Nov 2
    • OpenTable Meliodas
      Social media
      Nov 3
  • Google The Old Nite
    Depending on your idea, the cost of getting the thing off the ground, your confidence and skills, 50k for a third could be way too much or way too less.
    Nov 2 1
    • OP
      We think we could build a solid MVP to gain traction, and develop into the full product as we get funding and more team members
      Nov 2
  • Walmart plumb
    That’s too much. Basically you are saying your company is worth $150K.
    Nov 2 6
    • OP
      Yes that is the case
      Nov 2
    • Alteryx / Other SIxE21
      And right now (as just an idea) it's worth $0
      Nov 2
    • eBay abababbb
      So 50k for 1/3 of a worthless idea seems pretty fair to me
      Nov 2
    • Walmart plumb
      If you take the view that this is like a scholarship (somebody mentioned below too), then this is great. Otherwise, I would say build a prototype first and then bring investors.
      Nov 2
    • OP
      I agree guys, thank you
      Nov 2
  • Walmart shikhandi
    As someone who had multiple startups before I can tell you two things. You have not done this before and you will learn a lot. Your seed investor has not done it before (because of the valuation) and they will learn a very painful lesson of seeing 50k going down the toilet. Platforms are hard, your changes of success are pretty low but the lessons learnt in entrepreneurship are worth it. Go for it, treat the 50k as scholarship money as they are paying you for your education.
    Nov 2 5
    • Walmart shikhandi
      Also in case you actually become successful, don't worry about this investor. You will need millions in funding and every institutional investor will make it contingent on diluting his shares but not the founders. He will have to choose between losing his 50k or accepting more reasonable terms later. Either ways, you win.
      Nov 2
    • OP
      Interesting angle. I like it. And for this second part... would we have to make sure certain terms are set from the beginning to ensure this diluting if his shares only would be a possibility? Or is it based solely on the fact that he has less equity than us that would make this possible
      Nov 2
    • Walmart shikhandi
      Don't worry about terms. Everyone without any real leverage (read not founders) will be bullied to reasonable terms. The reality is that if the new multi-million investor wants they can restart another company just with the two of you who matter. When your investor friend realises this, they will come to senses.
      Nov 2
    • OP
      What if we all had 33.3%? Wouldn’t he at that point be considered a founder? We have not incorporated at all yet so he would be a part of the initial equity split. But we are open to multiple ways of doing things. Are you saying the VC down the line could buy our investor friend out and create a new company without him in it?
      Nov 2
    • Walmart shikhandi
      Nope. Founder is not who founded the company. Founder is someone who is essential for the company to survive. Everyone else is a nobody who will be shown their worth it the free market
      Nov 4
  • New / Mgmt facebooo
    You have nothing, just an idea. Will this cofounder also work with you on the startup? Does he have a balanced self-interest and interest in the startup succeeding? Some of the major VCs won’t do a deal where there is another investor with a bigger stake than them.
    Nov 2 1
    • OP
      He will advise, and help us get to our series a funding. This is the main part he will play. He’s not a VC, just a wealth manager with extra cash to play with. He has taken weekly meetings with us of an hour each as well as done HW on various subjects
      Nov 2
  • New / Mgmt facebooo
    Why are you taking the 50k? It seems too little to matter. I say that based on your past success. ($50k is a lot to many people but not to serial founders)
    Nov 2 3
    • OP
      We wanted to take the money mainly for marketing or MVP to get traction if we went one route... or if we go another route we would use it to contract work for a more advanced version of the MVP
      Nov 2
    • New / Mgmt facebooo
      Based on all your answers so far, and considering you are in your early 20’s, I say go for it and stop delaying getting that MVP to market. Everything is hypothetical and it’s ok if you don’t make money in this idea. Exit on the upswing and do another startup.
      Nov 2
    • OP
      Thanks for the advice :)
      Nov 2
  • This comment was deleted by original commenter.

    • OP
      I was under the impression that everyone would be diluted, including him. Someone above said the opposite hinting that the founders wouldn’t be diluted the most and that the other investors would be mainly diluted
      Nov 2
  • Postmates ͡° ͜ʖ ͡°.
    50k for 33%? Bullshit offer. Utility app? Hmm
    Nov 2 1
    • OP
      We are going to try to negotiate down next meeting. Haha we said 10, he said 33.... we will see where we end up next meeting
      Nov 2
  • Intuit c9a4b
    How much revenue do you have? We need more facts to tell you if 50k at 33% is good, average, or a terrible deal for you.
    Nov 2 1
    • OP
      This is at idea stage, no revenue
      Nov 2

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