Ask HN: How much equity to give away for $100k?
Hi HN, we are wondering how much usually other startups are giving away for 100k funding? Say, you are not launched yet and about 70% from releasing version 1.0. There are 3 founders. Thanks
4 comments
What's your expected turnover and profit in year 1? Year 2? Year 3?
What is the probability of failure?
The following is really, really rough, so feel free to argue with it, but here's some thinking.
Suppose a VC expects, on average, to double their money over three years. Suppose you have a 10% chance of $2M profit over three years, a 60% chance of $100K profit over three years, a 20% chance of breaking even over three years, and a 10% chance of losing everything.
Your expected profit over three years is around $200K to $250K. That's twice what they invested, so they want 100% equity.
Now tell me where that's wrong.
What is the probability of failure?
The following is really, really rough, so feel free to argue with it, but here's some thinking.
Suppose a VC expects, on average, to double their money over three years. Suppose you have a 10% chance of $2M profit over three years, a 60% chance of $100K profit over three years, a 20% chance of breaking even over three years, and a 10% chance of losing everything.
Your expected profit over three years is around $200K to $250K. That's twice what they invested, so they want 100% equity.
Now tell me where that's wrong.
An oversimplification to illustrate the concept:
Shares = investment amount/current valuation
There is no universal answer. If your version 1.0 is likely to earn us $1B in sales the first year you would give away a hell of a lot less than if your version 1.0 is a freemium app targeted towards furries to help find local dry cleaners. It all depends.
Shares = investment amount/current valuation
There is no universal answer. If your version 1.0 is likely to earn us $1B in sales the first year you would give away a hell of a lot less than if your version 1.0 is a freemium app targeted towards furries to help find local dry cleaners. It all depends.
Thanks about "there is no universal answer". I was thinking if there is some "average" equity that people are giving out for 100k. Example, in YC, it's 2% - 8%.
$3.50
you can't really answer such question if you don't say what it is you are doing.
you can't really answer such question if you don't say what it is you are doing.
Convertible debt is the best thing from your perspective and means you don't have to answer this question.