Jim and Sarah’s conversation above is a very common conversation among entrepreneurs.
Next time, you encounter an entrepreneur who brags about how much money he has raised, ask a follow-on question: How much ownership do you have left in the company?
As a thumb rule, in 1M/1M, we advise entrepreneurs not to raise equity financing at a pre-money valuation below $2 million. The rationale is that if you start parting with large chunks of your business very early on, you will end up with a minuscule ownership in the company as you pile on follow-on rounds of funding.
That said, we work with a lot of international geographies with very weak seed funding eco-systems. In those situations, we often find entrepreneurs faced with very few options, and very little negotiating leverage. They need money. The terms are dreadful. Take it or leave it.
At any rate, try to create negotiating leverage for yourselves. When you go to investors, try to go as queens and kings, not as beggars.
Bootstrap first, raise money later, once you have built some valuation.
This segment is a part in the series : Entrepreneur Dysfunctions in Cartoons