I know you are excited about your seed stage startup and I know that your excel says you will reach hundreds of millions of dollars in revenues in 5 years, and I sincerely hope you do. I know your cash need to cover your entire plan is high, and I know you are very generous with your equity, for the right valuation. However, unless you are a global superstar or have previously successfully exited a company, the industry has its own rules for us mortals, which you should get familiar with:
1. Your valuation has nothing to do with your excel. Your valuation at Seed Stage is on average around$1M- $3M. The higher end is reserved for companies with proven commercial traction and exceptional teams.
2. There will be more rounds. Your cash need for the Seed round is a derivative of your excel and is not there to cover your entire plan. The Seed round is there to get you to the next phase of your commercial road map. The Seed Investor will most likely not invest more than $500K and they will expect no less than 20% equity. So, yes, this means that there will be future round/s until you reach that growth phase, and yes, you will be diluted. Investors know this as well and will reserve around $1M - $2M more for future rounds.
3. Time is more important than money or equity. If you are thinking, that it is simply not worth it to take such a "small investment" and pass on the opportunity, in more cases than not, you will regret it 12 months down the line after nobody else offered you a significantly higher amount than the first investor, and by then you have 5 more competitors (who did take the $500K) and you will no longer be relevant.
4. The Seed Investor will be an active partner. They will most likely want a board seat and will be meeting you periodically to monitor your progress. If you are looking for a person to just hand you the money and walk away, you will be disappointed. On the contrary, you should convey that you are looking for "smart money" and an investor that has the connections and insights to your industry to help accelerate your success.
5. You have to think about long term relationships. The valid investors you turned down are less likely to offer you anything down the line. You should make a great impression with these investors to keep a good working relationship. Entrepreneurs tend to create more than one company in their lifetime and that first impression will be your ticket to fund your next startup.
In summary, I am not suggesting you accept a bad investment or to work with an investor you feel is not right for you. I am just saying that you should be aligned with industry standards and take all of the above into consideration before turning down a valid offer.
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