Assume a founder sells 20% of their equity for $100k (first investment in the company so it's pre-seed) .
And is personally okay with it. What would be wrong with this.
I was told by friends that selling 20% of your company for $100k makes it very unattractive for new investors wanting to invest in the company.
Are there any experienced founders or investors here that can explain why it is unattractive to invest in a startup that sold 20% equity for $100k in its first round (probably pre-product, pre-MVP)
Let's say the business has good fundamentals (traction & cashflow) after the $100k investment.
What would make a potential investor pass pass on such a deal?
$500k is obscenely low for most companies, but not all. Are you building a lemonade stand?
An old expression is "any fool can sell a dollar for 90 cents." Your willingness to take such a low amount of money for a large amount of equity and control says a lot to future investors, and the news isn't good.
Can I now also invest $400K for the other 80%? (I'd never see it again because with 0% of the company left to sell, you have zero financial reason to stay involved in the company).
In the US, a modern day rule of thumb is $10M post money valuation for your first (seed) stock offering. Most states nudge you toward 10M shares for a corporation, the math is pretty simple for $1 a share.
If you can legally revise that sale to maybe 1% of your equity, or cancel the old corporation and create a brand new one where that money goes into the new one at 1%, it'd be perfectly fine with most investors.