What to do with greedy investors?

6 points by kemo 14 years ago | 9 comments

I've been working on my new start-up for 3 months now. Basically, it'll be the first payments-enabled marketplace for end users in my country with great potential to actually take over the domestic market.

Two investors have already heard of it and made an (IMHO, greedy) offer: an "angel" investment of ~30K (plus office space) for 60% of the company - they'd practically own me. This "investment" would be charged to the company these "investors" work for, but the deal is that both of them get 20% each and their company getting 20% (yeah).

The thing is; both me and my co-founder are pretty much broke since we've been working on this only, so we won't be able to proceed without some kind of investment. I don't know many people who invest in start-ups here and I don't know where to look for them at all. I know about funds like 500startups and YC but I don't think it's worth even applying or pitching their mentors about a product that's targeted for our market only.

Please, enlighten me; what should I do and where should I look for a better deal?

jcr 14 years ago |

It's a good thing that you asked here, but you need to do more homework. YCombinator typically offers $15K to $20K (USD) for about 2% to 10% of the company on their seed level funding.

http://www.ycombinator.com/about.html

I recall reading the average was about 3-4% of the company, but I can't recall where I read it.

You seem to already know that the offer you received is absurd but the YC numbers should put it in better perspective.

If you want to know what real angel investors are like, you should read this:

http://www.paulgraham.com/angelinvesting.html

And then read over the docs/terms typically used for angel investments.

http://ycombinator.com/seriesaa.html

Everything under 50-100K is typically considered "seed funding" but the differentiations between "seed," "angel," "super-angel," and "VC" are somewhat blurred and undefined. If you have a viable market/product, real investors at the various funding levels will be interested. If you get into one of the seed funding organizations like YC or one of the incubator programs, the most important things you get are outside validation, mentoring/help, and access to networks of investors through "Demo Day" gatherings and other channels. It's smart to apply.

As for the ways to look for a "better deal" the above is the best idea, but you can also start contacting angel investors on your own through things like Angel List and similar. Be careful on which investors you work with and choose them carefully. As PG states in his essay, the best angel investors are nice people, but if you also read enough of the horror stories from founders, not all angels investors are nice.

A lot of the angel investors run their own blogs and twitter feeds (Fred Wilson at avc.com comes to mind), so that's another way to find them. As for learning the reputation and skills of specific angel investors, you'll need to do a ton of searching and reading.

Hopefully, this will get you headed in a better direction.

Good Luck!

ScottWhigham 14 years ago |

I think you are confusing "greedy" with "opportunistic" and "risk averse".

You said, "I've been working on my new start-up for 3 months now... both me and my co-founder are pretty much broke since we've been working on this only, so we won't be able to proceed without some kind of investment" - that's telling me that you are desperate. If you are seriously that desperate, then you are a huge risk. The potential investor likely feels the need to see a bigger ROI potential before getting into bed with you.

In this post, at least, you haven't set yourself up as someone worth investing in - the two of you started a business yet failed to do so with enough money to even last four months, you are currently broke, and neither of you know any other potential investors. From that pithy description, it sounds like your business is on the brink of disaster. I know this is an abridged form of what you are going through but you just sound risky. I'm surprised that anyone is interested given that baggage.

I'm not trying to be disparaging but let's call a spade a spade: this isn't a "greedy investor" story; it's a story of two entrepreneurs who started a business without enough money and planning.

I'd suggest you move to working part-time on the project to get an MVP and then look to grow it over a few years. Taking on a 60% investor is mind crushing - that leaves 20% for you and 20% for your partner. Ouch.

petervandijck 14 years ago |

1. They're douchebags (which is proven by the terms of the "investment"). NEVER sign your company away to douchebags. You should prefer to shut down.

2. Which country are you in?

3. You have a (terrible) offer in hand. Now shop around. Decide how much you need for 12 months runway, minimally, and sell 20% of the company for that. Tell us your country, and ask for people here to connect you. Try to connect to expat technology people who are from your country but live in the US tech world. They are more likely to invest a few 10K at reasonable terms.

kemo 14 years ago | |

2. I'm in Bosnia and Herzegovina and the start-up is targeted for the ex-Yugoslavia area (Bosnia, Croatia, Serbia, Montenegro)

3. I'd love to connect with as many people as possible, my email and twitter are visible on my profile

clintavo 14 years ago |

Look for a better deal, definitely. Have you tried posting your company, product and fundraising on http://angel.co? There are lots of investors there and 30K would be a tiny deal for many of them.

Edit: clarified sentence.

kemo 14 years ago | |

I have an unpublished 'template' on angel.co, waiting for the product to be ready for launching to publish it

davidhansen 14 years ago | | |

Just as a warning, angel.co is completely useless if you don't already have a number of preexisting connections to the angel investing community. If you start with 0 followers, you will have 0 followers forever, and nobody will ever see your profile.

damoncali 14 years ago |

Politely tell them that you are not interested and move on. I don't know where you are or what your credit is like, but you could raise that much with credit cards in the US.