The percentage is based on a very rough estimate of the startup's prospects. If the founders seem like superstars and have been working on it for a while, we might ask less than 6%. Whereas if the company seems riskier we might ask for more.
We should go back and see if the predictions implicit in the offers correlate at all with how the startups have done.
I would be really curious about those dollars, and what percentage get an investment of 1 million plus.
6% seems like a 200% profit if each yc startup generates a 1 million dollar investment.
If the VC deal rate is closer to 1 in 10 or 1 per year, it looks like you need one $10 million dollar deal a year, each of which needs to have a potential of $250 million eval, or $25 million a year in revenue before the VC will be interested.
So my question is, if a team can demonstrate "real" projections with lower than average risk, and demonstrate a 2 year projection of greater than $25 million a year would you consider an offer of less than 6%?
My second question is, since we are in the Midwest, "What exactly is a rockstar?" ;-) We have Billy Corgan, and Garbage to be proud of, but the coasts seem to be more keen on the idea of the "rockstar," so, what are the characteristics of a "tech" rockstar?
...decisions will include the amount we'll invest and the
percent of the company we'd want for it. We usually invest $5000 + $5000n, where n is the number of participating founders (i.e. 2 founders get $15,000, 3 get $20,000), in return for between 2% and 10% of the company. The median is 6%.
but the % share is a good reason to turn down the deal if you have other options. I just think it's to know what yc investors are told behind the curtain, and how much you are worth. It's nice to know what expectations you should live up to.
